When it's time to apply for a mortgage loan, your real estate agent may recommend a mortgage broker to you. Usually, this is a broker the agent has worked with in the past. The broker and the agent might have a referral arrangement in which they steer clients to each other. However, the broker your agent recommends may not be the right one for you.
A mortgage broker differs from a mortgage lender or banker in one key way: Mortgage brokers do not originate loans. Instead, mortgage brokers act much like insurance brokers. They shop among a variety of lenders in an attempt to find their clients the best deals on mortgage loans.
There can be benefits to working with the mortgage broker your real estate agent recommends. Agents aren't likely to recommend brokers who haven't provided good service in the past. Doing so would only hurt agents; their angry clients would not recommend these agents to their own friends and family members. Brokers might also provide a discounted fee to clients of agents who refer them business, something that could reduce your costs of taking out a mortgage loan.
Even if your agent recommends a broker to you, you should shop around with a variety of mortgage lenders. This is the surest way to get the lowest possible interest rates and fees. You are free to take out a mortgage loan with any lender or work with any broker who is licensed to do business in your state. The fees these lenders charge can vary widely. Mortgage origination fees are usually about 3 percent of the cost of a home, according to the Federal Reserve Board. By shopping around, you might be able to find a lender willing to waive some fees.
Finding the Right Broker
There are some key questions you should ask mortgage brokers and lenders when you are shopping. First, ask for references. Don't work with any broker or lender who won't provide you with a list of past customers. Next, ask brokers and lenders how long they've worked in the business and about how many loans they've originated or brokered. Finally, ask them how they are paid. Most will charge an origination or lending fee. Ask for an estimate of this fee.
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