What Are the Pros and Cons of Working with a Mortgage Broker?

When searching for a mortgage, you might work with a mortgage broker. The goal of working with a mortgage broker is to ensure you’re securing the best rates and terms. However, after the real estate market crash in 2008, the industry came under scrutiny, so there’s still some residual doubt about working with these professionals.

You might worry a mortgage broker doesn’t actually have your best interests in mind. In reality, when you work with someone ethical and experienced, they can be an asset. As with anything, though, there are pros and cons if you decide to work with a mortgage broker.

Working with a mortgage broker is an alternative to working with a bank. A bank or mortgage company is a direct lender. These are financial institutions that originate, process, and fund loans. The company that handles your loan process is the one that lends the money.

A mortgage broker is a middleman, and the goal is for the broker to match you with the right lender for your needs. Brokers work with wholesale mortgage companies, so they’re your primary and unified point of contact to compare multiple loan options.

The following are some of the pros and cons of working with mortgage brokers.

What Are the Pros of a Mortgage Broker?

When you work with a broker, benefits include:

• Brokers have access to interest rates and loan program options from various lenders, so they might be able to get you a more specialized product that’s well-suited to your needs.
• Comparing a number of lenders is time-consuming, on top of everything else that can come with buying a house. Brokers can help manage the legwork, and they can also make sure you steer clear of lenders with adverse payment terms that might be otherwise buried in the fine print. While brokers do a lot of the heavy lifting, so to speak, you still need to do some of your own research before meeting with someone so that you’re going to be better prepared to assess the skills and qualifications of the broker.
• Since brokers work exclusively with lenders, they might have better access. Some lenders won’t let you directly get in contact for a retail mortgage.
• Brokers can get special rates if they generate a lot of business for a lender, and you wouldn’t be able to do this on your own.
• Brokers might be able to manage the fees. There are a lot of fees that come with getting a mortgage, including application, origination, and appraisal fees. A mortgage broker may be able to negotiate with lenders to waive some or all of these, which can end up saving you thousands of dollars.

What Are the Downsides of Working With a Mortgage Broker?

There are some downsides you have to weigh that come with working with a broker.

• There’s no guarantee that a mortgage broker’s interests will be in line with your own. Mortgage brokers get a fee when they bring business to a lender, the fee might be based on the amount of the mortgage, so you could see how if you were working with someone, they could steer you toward a loan that’s more than you want to take out. A broker’s goal is to maximize their own compensation, and that’s why many earned a negative reputation after the 2008 housing market crash.
• Some mortgage brokers may offer you the same terms and rates that you’d get from the lender anyway. You should probably still shop around to make sure what you’re getting from a broker is the best deal, increasing the amount of work you need to do and negating some of the benefits of working with a broker in the first place.
• A mortgage broker might be paid by a lender or by you. If the lender covers the fee, then again, you might need to question whether you’re being steered toward a loan that ends up being more expensive so the broker can increase their commission. You need to be clear on all fees upfront before you agree to anything or work with a broker.

For many buyers, particularly since you have access to online comparison tools, a broker might not be worth it as you secure a mortgage.