Working With Mortgage Brokers

A mortgage broker is one of several sources that homebuyers can use to obtain a mortgage. Mortgage brokers work with multiple lenders, also known as wholesalers, to offer loan products to homebuyers. When you work with a mortgage broker, he does the initial steps of the loan process: completing the application, obtaining your credit report, conducting the appraisal, verifying your employment, etc. After the broker completes these steps the lender conducts the underwriting process in which your risk as a borrower is determined. When the loan closes, you will no longer work with the mortgage broker. Instead, you work with the lender.

These wholesale lenders quote brokers a wholesale price for the loan. The mortgage broker then decides the price to offer to you. The price you are quoted by the mortgage broker often includes some type of markup, usually in the form of points. Each point is one percent of the total loan amount. So if the mortgage broker charges 1 point on a $100,000 loan, he received $1,000. Keep in mind that the number of points the broker charges is in addition to interest charged by the loan provider.

There really is no systematic way for mortgage brokers to set their markups. For the most part, you can expect the broker to set the markup as high as they feel they can get away with. This is why it is vital for borrowers to negotiate the price of their loan as much as possible. Go into the process expecting to negotiate because often the markup a mortgage broker includes isn’t the absolute lowest he or she will accept.

The benefits to using a mortgage brokers are numerous. You will likely get a much better deal when you work with a broker than you would going straight to the lender, even though mortgage brokers are known for marking up mortgages. Since mortgages brokers have the luxury of working with several different lenders, they are in a position to give you the lowest mortgage offered.

You might also consider working with an upfront mortgage broker, a variation on the traditional mortgage broker. An upfront mortgage broker conducts business in a slightly different, and perhaps more ethical manner. At your request, this kind of mortgage broker discloses, in writing, the wholesale value of the loan as well as his or her markup included in the loan. There are no secrets when you work with an upfront mortgage brokers – you know exactly what you are paying and how much goes to each party in the process.

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