If you're thinking of buying a new home, a mortgage broker can help you with everything from filling out the paperwork to getting the best available rate. Mortgage brokers work with a number of different lenders at the same time, and they know which lender has the best available rates at any one time. However, you should consider the disadvantages as well before you decide to use a mortgage broker.
If your individual credit situation is complicated, you may not get a loan offer at the first bank you try. A mortgage broker may know a lender who would be willing to work with you, but the inside information can come with a high price. Mortgage lenders sometimes pay the broker's fee, but they are less likely to do so when the borrower has credit issues. In this situation, the mortgage broker will probably include his fee in your closing costs. This fee can sometimes be several hundred dollars.
You may be able to find a better rate through a mortgage broker than what the bank will offer you, but closing costs might be higher than they would be with a bank. In addition to the fees charged by the mortgage broker, mortgage lenders also frequently add fees of their own. On a smaller mortgage, the fees may negate the advantages of getting a lower rate through your broker. In some cases, you can even end up paying more than what you would have paid by going through a bank, once the loan rate and the fees are factored together.
When the mortgage lender pays the broker a commission, a good deal for your broker can represent a poor deal for you. If the mortgage broker chooses a lender based on her own commission rather than your financial interests, you won't get the best available rates. The broker may also direct you to a lender with which he has an ongoing business relationship, prioritizing his relationship with the lender over your needs as his client.
In many cases, the best and most experienced loan officers from the banking world move on to a career as mortgage brokers. However, it is also the case that many mortgage offices hire inexperienced brokers and let them learn on the job. One of the primary advantages of using a mortgage broker is their inside knowledge of the market, and this advantage is lost if the broker you're dealing with happens to be inexperienced. An inexperienced mortgage broker won't know how to find you the best deal.
- Stockbyte/Stockbyte/Getty Images