“So what do you do?”

“I’m a mortgage broker.”

When we meet new people we almost always ask them what they do for a living. When I tell people I’m a mortgage broker, most people don’t really know what a mortgage broker does. This week’s Mortgage Minute answers that question.

WHAT IS A MORTGAGE BROKER?

First – I think it is important to define what a mortgage broker is. Mortgage brokers are your loan guide. I guess you can call them mortgage Sherpa. Mortgage brokers work with borrowers throughout the entire loan process (pre-qualification/application, processing, underwriting, closing, and post-closing). The key advantage of using a mortgage broker is that they shop many different lenders on your behalf to find the lowest rates, lowest fees, and the best loan program for their borrowers. Broker’s receive a fixed compensation amount from the lender and cannot charge additional fees to the borrower for their services. A mortgage broker is an advocate for their client, and must abide by strict compliance and anti-steering laws.

The key advantage of using a mortgage broker is that they shop many different lenders on your behalf to find the lowest rates, lowest fees, and the best loan program for their borrowers.

WHAT ARE COMMON MISCONCEPTIONS ABOUT MORTGAGE BROKERS?

MIDDLEMAN

Many people believe that mortgage brokers are just middlemen (or middlewomen) between them and the lender who provides the loan.  While this is true, I don’t like the term “middleman” because of the negative connotation it provides. I prefer the term “client advocate” (or mortgage Sherpa?). One thought is that it will be easier for a borrower to use their bank because that bank already has their checking and/or savings account. This is completely untrue. The loan process will not be any easier simply because you have an active account with the bank. A mortgage broker will actually help make the mortgage process easier for you. By gathering and reviewing all your documents up front – before they are sent to the underwriter – the mortgage broker can save you a lot of time and headache. Mortgage brokers know exactly what the underwriters are looking for, and can present just enough information to help you get approved. But wait – won’t it cost me more because there is a middleman? (see: “EXTRA COST” below)

The loan process will not be any easier simply because you have an active account with the bank.

EXTRA COST

I used to believe that going direct was the cheapest option, and if there is a middleman, you are surely paying extra for their services. In the case of mortgage Sherpa (brokers) this couldn’t be further from the truth. As mentioned above, mortgage brokers are paid a fixed commission from the lender for their services. But isn’t it cheaper to just go directly to the lender and avoid the brokers commission? At first thought, this may appear true. However, if the lender does not have the broker bringing in the loan, that lender must now hire, train, and pay additional staff to do the job that the broker is doing. With specialization, (more on that later) a mortgage broker can actually reduce the cost of mortgage lending for both the borrower and the lender. It’s a win-win-win!

WHY SHOULD I USE A MORTGAGE BROKER?

SPECIALIZATION

Mortgage brokers focus on one thing – home loans. Banks offer a variety of products from checking & savings accounts, credit cards, auto loans, student loans, investment accounts, home loans, and more. Mortgage brokers are individually licensed and must meet certain continuing education requirements; whereas banks have umbrella licenses and their loan officers are not held to the state and federal licensing requirements. When it comes to something as important as buying a home, you need someone who is an expert. Mortgage brokers care about delivering the best mortgage and home buying experience, banks are probably trying to get you to buy into their other services too.

OPTIONS

Mortgage brokers have many more loan options and underwriting flexibility. This means your chances of getting approved for your loan are better. But more importantly this means that your chances of getting the best loan option for your unique situation is better as well. Banks have fewer options (because they don’t specialize they don’t have to capacity to learn and understand all of the intricacies of many options) and since the financial crises they have tightened up their mortgage lending standards so much, that most people don’t fit into their “box.” Mortgage brokers have access to a wide variety of loan products from many different lenders. Maybe a 3% down loan would be good for you…but hey maybe a 1% down loan would be better. With a mortgage broker you’ll be able to find that better option.

Mortgage brokers have many more loan options and underwriting flexibility. This means your chances of getting approved for your loan are better.

RATES & FEES

Q: What is the number one thing people want from their mortgage company?

A: The lowest interest rate and lowest fees for the loan type they are getting

Mortgage brokers are able to get their clients lower rates and lower fees than the competition. How does a small mortgage company do that?

• Mortgage brokers have a lot less overhead, waste, compliance, legal, and marketing costs than large lenders and big banks.
• We are agents for our clients, not for the bank. What does this mean? This means that we have a fiduciary duty to find the best loan option available for our clients. Brokers shop around many different lenders to find the lowest rates and fees for you. That saves you the time and hassle of calling 10 different banks and getting quotes on their retail prices.
• Oh yeah, speaking of retail prices – did you know mortgages have retail and wholesale markets? Mortgage brokers offer loans from wholesale channels, not the retail rates and fees that banks are offering.
• Our compensation is fixed. A mortgage broker has no incentive to “rip off” a client or give them a higher interest rate. Mortgage brokers sign compensation agreements that set their compensation at a specific amount and they cannot get paid extra money by charging the borrower more.

AVAILABILITY

Have you ever tried to call your bank on Sunday afternoon? Have you ever tried to call your bank at 8pm? Have you ever tried to call your bank period? “We are experiencing unusually high call volume at this time, a representative will be with you shortly.”

The loan officer at the bank works a standard 9-5 M-F job, and will likely not make himself/herself available to you when you need him/her the most. Like on a night or weekend when you are looking at houses or gathering up your documents for your loan approval. Mortgage brokers make themselves available whenever you need them (the good ones at least – see: NXT Mortgage). Mortgage brokers have flexible schedules and often times give you their cell phone number, so you can contact them at any time. Loan officer availability is going to be one of the biggest intangible benefits of using a mortgage broker. Trust me, this will lower the stress of the home buying process.

Loan officer availability is one of the biggest intangible benefits of using a mortgage broker.

COMMUNICATION

Communication goes hand in hand with availability. Not only will you have better access to communicate with your loan officer, but your loan officer will have better communication with the other parties involved in the transaction as well (your real estate agent, seller’s agent, title company, etc.). Communication is a two-way street, at least with mortgage brokers it is. With banks communication is more like a dead end.

LOCAL

Mortgage brokers are usually local. They live in the same city as you and no and care about your community as much as you do. Shopping locally helps keep your local economy in good health by providing jobs, income, and tax revenue to your community. Guess what? A healthy economy helps your home value go up. So yes, using a mortgage broker will actually help your home value go up! Or maybe you would prefer to make some corporate executives pockets deeper?

FINAL THOUGHTS

At the end of the day, I encourage everyone to compare what several different banks, lenders, and mortgage brokers have to offer. I know that educated consumers, who choose to shop around, choose a mortgage broker the majority of the time. I believe that mortgage brokers are best for the consumer, the lenders, and the industry as a whole. We are brokers, we are better.

-Tyler