Mortgage Broker Pros and Cons

Some seasoned home buyers swear by mortgage brokers while others avoid them like the plague. But choosing a mortgage broker over working directly with a mortgage lender, such as a bank or credit union, has more to do with your real estate situation than your preference. Sometimes a mortgage broker will get you the best deal, other times not. Before you rule out mortgage brokers, consider some of the pros and cons of working with a broker to find a mortgage, refinance or get a home equity loan.

The difference between a mortgage broker and a mortgage lender is simple. A mortgage lender works directly for a bank, such as Bank of America or a local independent bank. They work with you to find the best product for your needs offered by the bank that employs them. A mortgage broker, on the other hand, is independent of any lender or bank. They can offer you a range of mortgage products from numerous different banks. They can quote you a mortgage from Bank of America, Wells Fargo and your local credit union. Like real estate agents, brokers typically only get paid when and if you close the loan. They collect their payment from the origination fees.

Mortgage Broker Pros

As mentioned above, the obvious advantage of working with a mortgage broker is that you get a wider range of options. Mortgage brokers often have access to products and offers that you cannot get if you walked into a bank as a consumer. They can also tap into networks that extend beyond your state. Although you are buying a home in Oregon, the most competitive offer may come from a bank in Indiana. A mortgage broker can help you make this connection.

Mortgage brokers don’t just offer you a greater range of mortgage lenders, they also offer more types of products. Large banks and credit unions tend to stick to fairly straightforward 30-year fixed-rate mortgages and a handful of variable mortgages. Mortgage brokers, on the other hand, may have better luck finding sub-prime mortgages, self-certified mortgages, modified adjustable rate mortgages, and other options which can help save you money or afford more home.

Mortgage Broker Cons

The perceived drawbacks of working with a mortgage broker is that they are less accountable than a mortgage lender from an established bank. By nature of your relationship, you may not see your broker ever again after your mortgage closes.

The mortgage brokerage business also has an unfortunate underbelly, populated by disreputable brokerages who offer loans and products that the buyer cannot afford. Unlike a mortgage lender, who loses a source of income if a loan defaults, mortgage brokers are compensated the same regardless of whether or not you make your payments.

Lastly, a mortgage broker may not have as much bargaining power as a senior loan officer at a mortgage lender. Banks and other lending institutions tend to waive some or all of the closing costs or origination fees in order to win your business. But because mortgage brokers are paid from these fees, they can’t and won’t offer such discounts.

Conclusion

At the end of the day, a mortgage broker is a middleman. The benefits and drawbacks of working with a mortgage broker are similar to the pros and cons of working with a real estate agent. You get the advice, expertise and connections of a third-party working on your behalf. But you also have to pay them for their services. In some cases, mortgage brokers pay for themselves. Other times, you can save by working directly with a mortgage lender.

We recommend getting quotes from both mortgage brokers and mortgage lenders. For any type of mortgage or refinancing, it is always best to get at least three different quotes. Include one or two mortgage brokers who come with good referrals in your research and see if they offer competitive rates.
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