Frequently Asked Questions about the Job of a Mortgage Broker

A Home Buying Article Contributed by Robert Scalia

For Starters, What Exactly Does a Mortgage Broker Do?

A mortgage broker is an independent contractor who offers the loan products of multiple lenders like banks and other financial institutions that consider themselves wholesalers. So a mortgage broker is really just a middle man between you and your lender.

So a mortgage broker's job is to provide counsel on the various types of loans available from different wholesalers. His job is also to take your application and process your loan; a process that usually involves putting together the complete file of information about your transaction. That transaction will almost always include information on the credit report, appraisal, verification of your employment and assets.

Once the file is complete, the lender will then proceed to determine if you are an acceptable risk for the loan they are offering. The only thing the mortgage broker doesn't do in this whole process is close the deal.

How Does a Mortgage Broker Make a Living?

The answer to this is quite simple and may tell you a lot about the type of mortgage broker you want to deal with.

Mortgage brokers are quoted a "wholesale" price by the lenders. That means it's up to the broker to decide what the retail price to you, the customer will be. Usually, the broker will add a markup of 1 point to any loan offered by a lender, resulting in an offer to the customer of 7% and 1 point. Remember that each point is is equal to roughly one percent of the loan amount. But the markups can often be even higher, so you have to be prudent.

Just How Does a Mortgage Broker Go about Setting Their Markups?

The general rule of thumb is that a mortgage broker will set that markup as high as they can get away with.

If you as a customer show no inclination to shop around for the best quote, than your mortgage broker will catch on and, well the sky's the limit. It is not uncommon for mortgage brokers to rationalize the high markups they charge some customers on the grounds that these are needed to offset the excessively small markups they are forced to accept on other deals.

However, if you're wondering why you're not better off just going to the lender and leaving the broker out, think again. In fact, if you are a reasonably astute shopper, you will probably do better dealing with a mortgage broker. That's because they do not add any net cost to the lending process, given that they are simply performing functions that would otherwise have to be done by employees of the lender.

And the fact that mortgage brokers deal with multiple lenders (25 to 30 i general) means they can shop around for the best terms and rates on any given day. Your best bet, therefore, is not to shun the mortgage broker and go at it alone. Your best bet is to get the mortgage broker working for you.