Buying a home is a massive financial commitment and the process of getting a mortgage and closing the loan can be very drawn out and confusing. Should you look for a mortgage broker to help you find the right lender and mortgage program?
Quite a few home buyers end up online seeking information about getting a mortgage. It’s typical to get presented with listings for local mortgage brokers who claim to be the best resource for loan options. Before you decide on a mortgage broker you should know a thing or two about how brokers work and how that can affect your home loan choices.
Who a Mortgage Broker Is
Mortgage brokers have to jump through some hoops to be recognized as financial professionals. They will typically
- Have a bachelor’s degree in finance, business, or accounting
- Be able to show they’ve completed a certification or pre-licensure program
- Have passed the National Mortgage License System (NMLS) Loan Originator exam
- Hold a business license for the state(s) in which they operate
- Be bonded in their profession
Lenders and mortgage brokers aren’t the same, but they can work together. The broker can refer loan applications out for underwriting and approval to any number of different lenders and will usually have a special relationship with at least a few local and big banks as well as online mortgage companies.
What a Mortgage Broker Does
You may find a mortgage broker who operates independently, or choose one who works directly for an online mortgage broker company or a local mortgage brokerage. Your broker won’t lend you money directly, but they can pass information about you to a lender who will be able to get a loan funded.
You want a mortgage loan professional who will work with you and research available loan options. Your loan expert should understand your unique situation and negotiate with lenders on your behalf to help you get the best deal on your mortgage interest rate, down payment, and closing costs.
A broker may do these things, or they may simply gather your information and pass it on to a bunch of different lenders to generate potential loan offers from which you can choose. This can leave you without the personalized experience you really need to get the best mortgage.
How Mortgage Brokers Get Paid
The Dodd-Frank Act blocks dual compensation, which means that the broker can either charge you, the borrower, for their services, or they can charge the lender — but never both.
This means if the lender pays the broker, they can’t charge you for anything: not a loan origination fee, not a “points” fee, nothing. Likewise, if they choose to be paid directly by you, they can’t accept any sort of compensation from the lender.
Brokers usually get paid a commission based on the loan amount. Their cut can be anywhere between 0.5% and a federal cap of 3% of your total loan amount.If you pay your broker directly, you may be able to agree on a flat fee instead of a percentage-based fee.
Borrower-paid mortgage broker fees are due at closing. Lender-paid broker fees don’t incur any out of pocket cost for you and are usually given to the broker by the lender after closing.
Mortgage broker fees can cause some bias when it comes to what lenders your broker presents to you. You need to think about whether or not the “top picks” are really offering the best deal, or if they may possibly just be offering the broker the highest commission rate.
Online Mortgage Application and Pre-Approval
One major benefit people believe a mortgage broker can bring to the table is their access to many lenders who allow online mortgage pre-qualifications, give you a fast way to test the waters and find out how much home you could be able to afford.
A mortgage bank can do you one better, allowing you to begin the mortgage application process and get fully pre-approved. You can apply online from the comfort of your home, and upload all of the documents needed for verification, like proof of income, employment, tax information and more through a secure portal. Once you’re pre-approved, you’ll get a pre-approval letter to show real estate agents and sellers so you can make an offer on a home with confidence.
At Sammamish, you can complete the entire mortgage application online, either by yourself or with the help of one of our salaried loan officers (LOs). Then you’ll have one-on-one support from preapproval to your closing date, making your home buying journey a success.
Using a Loan Officer vs. a Mortgage Broker
Choosing between an LO and a mortgage broker is one of the more important decisions you’ll make as a homebuyer and you need to understand the difference between the two. A broker can’t underwrite loans or fund mortgage loans; they simply connect you with lenders and help streamline the process.
A loan officer (LO) is directly employed by a bank, credit union or other lender that can handle the entire process from loan origination to funding. An LO is well-educated about all of the possible loan products and programs available to you, and can provide guidance based on your financial situation.
LOs can be paid by commission, which, like with a mortgage broker, can cause bias when it comes to recommending loan products and loan amounts. If you choose a mortgage bank that pays all of their LOs a generous salary, you can get unbiased advice on what you really need and find the best mortgage for you.
Questions to Ask a Mortgage Broker
If you do decide to use a mortgage broker, make sure to ask these questions before you make your ultimate selection:
- How much do you charge for brokering a loan?
- Who pays your fees, and do you work on commission?
- How many years of experience do you have? Are you licensed / certified?
- What types of loans do you have experience in?
- What type of loan do you think fits me best? Why?
- What lenders do you work with, and how do you determine who to refer to?
- Can you get me a pre-approval and a rate lock?
- How long will it likely take to close my loan?
- Will you be my personal contact during the home buying process?
If a mortgage broker is just taking down your information and plugging it into a tool then sending it off to a bunch of lenders to complete the process, you won’t necessarily get personalized services or a tailored home loan. By asking pointed questions about pre-approvals and rate locks, you can get a feel for how knowledgeable and supportive a broker will be.
If you want the best mortgage provider, the best rate and the closest overall costs, shop around until you find the right match, whether that’s a mortgage broker or a mortgage bank staffed with professional, salaried loan officers.
Important Loan Limits Information
Loan limits are dollar amount caps placed on a mortgage. Different types of loans have different limits.
- Conforming loan limits are caps placed on loans that Freddie Mac and Fannie Mae will acquire.
- FHA loan limits are caps placed on loans that the Federal Housing Administration (FHA) backs.
- VA loan limits have been eliminated since 2020. Some borrowers may still be subject to them if they currently have a couple of VA loans, or have defaulted on one in the past.
Loan limits are assigned to (and vary across) each county in every state across the country. They typically increase at the start of every year to reflect the growth in home prices.
Check out our mortgage loan limit tool for conventional, FHA, and VA loans.
Your Mortgage Broker Alternative: Sammamish Mortgage
Sammamish Mortgage is a family owned, local mortgage bank serving the broader Pacific Northwest region, including Washington State, Idaho, Colorado, California, and Oregon. We are proud to offer a wide variety of mortgage programs and loan products with flexible qualification criteria.
Please contact us if you have any questions or are ready to apply for a home loan. One of our salaried loan officers (LOs) will be happy to help you get pre-approved for the home loan mortgage that is right for you.