A mortgage broker manages the process for you by applying for loans with different lenders, finding competitive interest rates and negotiating loan terms.
At NerdWallet, we strive to help you make financial decisions with confidence. To do this, many or all of the products featured here are from our partners. However, this doesnt influence our evaluations. Our opinions are our own.
Youve narrowed down the search to find your dream home, and now youre on the hunt for the best mortgage to put those keys in your hand. One way to do it: Work with a mortgage broker who can shepherd you through the lending process from start to finish.
Youve probably heard the term mortgage broker from your real estate agent or friends whove bought a home. But what exactly is a mortgage broker and what does one do thats different from, say, a loan officer at a bank?
Here are five of the most common questions and answers about mortgage brokers.
A mortgage broker acts as a middleman between you and potential lenders. The brokers job is to work on your behalf with several banks tofind mortgage lenderswithcompetitive interest ratesthat best fit your needs. Mortgage brokers have a well-developed stable of lenders they work with, which can make your life easier.
Mortgage brokers are licensed and regulated financial professionals. They do a lot of the legwork from gathering documents from you to pulling your credit history and verifying your income and employment and use the information to apply for loans for you with several lenders in a short time frame.
Mortgage brokers are licensed financial professionals. They gather documents, pull your credit history, verify income and apply for loans on your behalf.
Once you settle on a loan and a lender that works best for you, your mortgage broker will collaborate with the banks underwriting department, the closing agent (usually the title company) and your real estate agent to keep the transaction running smoothly through closing day.
Mortgage brokers are most often paid by lenders, sometimes by borrowers, but never both, says Rick Bettencourt, president of the National Association of Mortgage Brokers. Lender-paid compensation plans pay brokers from 0.50% to 2.75% of the loan amount, he says.
You can also choose to pay the broker yourself. Thats called borrower-paid compensation.
If youre shopping a mortgage broker, you want to ask them, Whats your lender-paid compensation rate [and] whats your borrower-paid compensation rate, Bettencourt says. They could be the same rate. But you need to do your due diligence [and shop around].
The competitiveness and home prices in your local market will have a hand in dictating what brokers charge. The nations coastal areas, big cities and other markets with high-value properties may have brokers fees as low as 0.50%. In the other direction, though, federal law limits how high compensation can go.
Under Dodd-Frank brokers arent allowed to make more than 3% in points and fees, Bettencourt says. That restriction was put into the financial regulation law as a result of the predatory lending that triggered the housing crash. It originally applied to mortgages of $100,000 or more, though that threshold has risen with inflation.
Loan officers are employees of a lender and are paid a set salary (plus bonuses) for writing loans for that lender.
Mortgage brokers, who work within a mortgage brokerage firm or independently, deal with many lenders and earn the bulk of their money from lender-paid fees.
» MORE:See our top picks for mortgage preapproval
A mortgage broker applies for loans with different lenders on your behalf, shops forcompetitive mortgage ratesand negotiates terms.
You can also save time by using a mortgage broker; it can take hours to apply for different loans, then theres the back-and-forth communication involved in underwriting the loan and ensuring the transaction stays on track. A mortgage broker can save you the hassle of managing that process.
But when choosing any lender broker, bank, online or otherwise youll want to pay close attention to lender fees. Specifically, ask what fees will appear on page two of your Loan Estimate form in the Loan Costs section under A: Origination Charges.
Then, take the Loan Estimate you receive from each lender, place them side by side and compare your interest rate and all of the fees and closing costs.
That head-to-head price comparison among different options is the best way to make the right choice in what is likely to be one of the largest purchases in your life.
The best way is to ask friends and relatives for referrals, but make sure they have actually used the broker and arent just dropping the name of a former college roommate or a distant acquaintance. Learn all you can about the brokers services, communication style, level of knowledge and approach to clients.
Another referral source: your real estate agent. Ask your agent for the names of a few brokers that he or she has worked with and trusts. Some real estate companies offer an in-house mortgage broker as part of their suite of services, but youre not obligated to go with that company or individual.
Finding the right mortgage broker is just likechoosing the best mortgage lender: Its wise to interview at least three people to find out what services they offer, how much experience they have and how they can help simplify the process.
Check your states professional licensing authority to ensure they have current mortgage brokers licenses in good standing. Also, read online reviews and check with the Better Business Bureau to assess whether the broker youre considering has a sound reputation.
NerdWallet writer Hal M. Bundrickcontributed to this article.
A previous version of this article misstated the agreements some brokers may have with lenders and how brokers are compensated. This post has been corrected and clarified.
Best Mortgage Lenders
We want to hear from you and encourage a lively discussion among our users. Please help us keep our site clean and safe by following ourposting guidelines, and avoid disclosing personal or sensitive information such as bank account or phone numbers. Any comments posted under NerdWallets official account are not reviewed or endorsed by representatives of financial institutions affiliated with the reviewed products, unless explicitly stated otherwise.
Disclaimer:NerdWallet strives to keep its information accurate and up to date. This information may be different than what you see when you visit a financial institution, service provider or specific products site. All financial products, shopping products and services are presented without warranty. When evaluating offers, please review the financial institutions Terms and Conditions. Pre-qualified offers are not binding. If you find discrepancies with your credit score or information from your credit report, please contact TransUnion® directly.