Getting a home loan can be complex and confusing, especially for first-time homebuyers. Mortgage brokers often step into such situations to offer advice and assistance on getting loans, especially those insured by the Federal Housing Administration and called FHA loans. FHA loan applications can be more complicated and time-consuming than conventional mortgages, but they offer homebuyers lower down payments. Just what is a mortgage broker? A broker is a middleman who is supposed to seek out the best loan for a buyer and the best borrower for a lender
Brokers Are Not Necessary
You don't have to use a broker to get an FHA loan, but if you choose to use a broker, any broker you use must be approved by the FHA. An honest and trustworthy broker can be helpful in shopping for good interest rates or terms and can assist a homebuyer in a new region who is not familiar with the housing or banking market. A broker also may help a borrower with weak credit by locating a lender who will make a loan.
Brokers Charge Fees
Brokers charge fees for their services, which are added on to the loan costs. There are no standard fees, so you have to ask a broker specifically about charges. Your closing statement will not break out broker fees. Some lenders may refuse to deal with brokers, reducing options for borrowers, especially those with good credit.
FHA as 'Broker'
The FHA itself can act as sort of a broker. Its parent agency, the Department of Housing and Urban Development, maintains a website called Lender List, which gives information on FHA-approved lenders. Enter the name of a potential lender, the type of loan being sought and other information and the site will provide information about that lender and loan. You can compare lenders yourself this way.
Most mortgage brokers make money by a difference in what the lender actually charges and what the broker charges you. A lender, for instance, might quote a loan to a broker at a flat 6 percent interest, but the broker will quote it to you at 6 percent plus two points, -- a point is a percentage of the loan charged up front at closing. The broker makes a profit on the two-point spread. Some brokers, however, charge flat fees to shop for loans for borrowers, so you will know exactly what you are paying.
- Total Mortgage Services: Use a Bank, Mortgage Lender or Mortgage Broker?
- Integrity Mortgage Licensing: FHA Mortgage Broker Licensing FAQ
- Mortgage 101: Is a Mortgage Broker Really Necessary?
- Federal Housing Administration: Lender List
- The Mortgage Professor: Lies Mortgage Shoppers Hear
- The New York Times: When to Use a Mortgage Broker
Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.