What is a Mortgage Broker?
A mortgage broker refers to a middleman who manages the mortgage loan process for businesses or people. Basically, they connect mortgage lenders and borrowers without using their own funds to establish the connection.
Mortgage brokers educate themselves on the financial standing of the borrower and attempt to connect them with a lender who is a good fit and provides a good interest rate for the borrower.
The mortgage broker ideally collects all relevant documentation from the borrower and passes it to the potential lender for processing and/or approval.
- A mortgage broker refers to a middleman who manages the mortgage loan process for businesses or people.
- A broker can assist a client with fee management in relation to obtaining a mortgage or approaching a new lender.
- The broker saves their client work and time because they usually have a great deal of information on lenders, repayment terms, and administrative fees or other fees that can be disguised in their contracts.
Mortgage Broker Duties
A mortgage broker’s work and duties vary depending on their service offerings and liabilities. In general, the duties include:
- Marketing of their services to clients
- Assessing and educating themselves on the financial position and circumstances of a potential borrower
- Researching the market to determine or source a mortgage product suitable for the client (borrower)
- Assisting the client with obtaining pre-approval for a mortgage loan
- Collecting all relevant documentation (bank statements, payslips, etc.)
- Completion of the mortgage application loan
- Ensuring that legal disclosures are understood by the client/borrower
- Submission of all document requirements to the lender
- Ensuring that they source a money-saving option for their client
Process of Mortgage Brokerage
Since a mortgage broker serves as the middleman between lenders and borrowers, the process often begins with a client wishing to buy a new home or seeking to refinance.
The client approaches a mortgage broker, and the broker approaches different lenders and finds out the requirements and rates to provide options suited to their situation.
The broker collects documents such as proof of employment, proof of income, credit reports, details of the client’s assets (if any), and any other important details that may be required to determine the borrower’s ability to secure financing from the lender.
The mortgage broker makes an estimation of the appropriate loan amount and type for the borrower and the loan-to-value ratio. The broker then submits the financing application to a lender for approval, acting as a liaison for the lender and the borrower during the entire process.
Once approved, the funds are loaned (from the lender and in their name), and the broker collects an origination fee from the lender for the services rendered. The payment is only received by the broker once the transaction’s been finalized.
Advantages of Using a Mortgage Broker
A broker can assist a client with fee management concerning their desire to obtain a mortgage or approach a new lender. The fees include the application fees, potential appraisal fees, and origination fees (which can be anywhere between 0.5% to 1% of the loan amount).
The broker saves their client work and time because they usually possess a great deal of information about lenders, repayment terms, and administrative fees or other fees that can be disguised in their contracts. However, borrowers are still encouraged to perform their own research.
Brokers tend to be well acquainted with lenders and are trusted by lenders. This makes the process easier because some lenders prefer to work only with clients. Brokers can also obtain good rates from lenders because they bring in clientele for the lender.
Disadvantages of Using a Mortgage Broker
Brokers may not always find the ideal financing for their clients, and sometimes, lenders offer the same rates to the broker, as they would with any other client.
Because brokers usually obtain a fee from a lender for the business they’ve brought in, they may not always keep the best interests in mind for their clients. The compensation varies from lender to lender; thus, the broker can source a deal that boosts their compensation.
The fees that brokers receive can also be paid by the client. It can mean that the loan will be expensive for the client. Some lenders do not make use of brokers.
Loan Officers vs. Mortgage Brokers
Loan officers are normally associated with one institution. They offer mortgage loan deals and rates from the institution they are tied to.
On the other hand, mortgage brokers work on the client or borrower’s behalf to find a lender well-suited for the client’s needs. They screen various options for the client. It is important, however, to note that not all lenders will work with a broker.
CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below: