What Is an Online Mortgage Broker? Do I Need One?
An online mortgage broker can take some of the stress out of buying a home. That’s because they help connect borrowers with mortgage products that are right for them.
A great mortgage broker will help you find a home loan with a favorable interest rate and a doable monthly payment. They’ll also submit your application paperwork to the mortgage company for you.
Today, online mortgage brokers are in demand as home buyers have more options for loans than ever before. This article explores what mortgage brokers do and why you should consider using one in your quest for the right home loan.
What Is a Mortgage Broker?
A mortgage broker is an agent or intermediary that helps connect mortgage lenders with mortgage borrowers.
When you work with a mortgage broker, they’ll learn about your unique financial situation and build a profile. Once that’s done, the broker will go over different mortgage loan types and help you determine which one would have the best terms for you.
For example, your financial situation may restrict you to an FHA loan due to a low credit score. Or, as a veteran, you might be eligible for a VA loan. Or you may be better qualified for an adjustable-rate mortgage or a conventional mortgage.
There are many options to consider during this process. For example, are you going to put enough down to avoid paying private mortgage insurance (PMI) each month? Will you be able to tap into a home equity line of credit (HELOC) if you need to at some point in the future?
A broker will explain all of the various options and let you know what’s available. Armed with that information, you can then pick the best mortgage product.
In addition, the mortgage broker handles a lot of paperwork and administrative tasks for the borrower.
Mortgage brokers vs. mortgage lenders
Mortgage brokers and mortgage lenders are often confused because the terms sound similar.
An easy way to think about it is that a mortgage broker is like a waiter and a mortgage lender is like a chef. The waiter tells you what’s on the menu and the chef prepares the actual food.
In other words, a mortgage broker doesn’t actually issue loans. They only facilitate mortgage loans offered by mortgage lenders (more on that below). A mortgage lender (such as Better.com) is a financial institution that serves as an originator and actually distributes the loans.
Why Should I Use a Mortgage Broker?
There are a variety of reasons why borrowers like working with brokers when shopping for mortgage loans. Here are a few of them.
More loan options
Some lenders work exclusively with mortgage brokers. As a result, using a broker could give you access to a lender you couldn’t otherwise access on the open market.
Get the best interest rate possible
Going through a broker can also provide access to exclusive rates that wouldn’t otherwise be possible to obtain. For example, a lender may offer special discounts to preferred brokers that can’t be accessed anywhere else.
When you work with a broker, you’re putting yourself in the hands of a trained expert. In fact, many states require them to get a mortgage broker license before helping clients. A good mortgage broker will use their expertise to help you find the right loan.
How Much Do Mortgage Brokers Cost?
Unfortunately, mortgage brokers don’t work for free.
One of the downsides about working with a broker is that you may have to pay a fee — just as you do when working with an agent or any other intermediary.
A broker may earn up to around 3 percent of the total loan amount. The cost is typically split between the lender, who pays a commission, and the borrower, who is usually responsible for paying 1 to 2 percent of the total loan amount.
This can be problematic for the borrower — especially if the broker charges a fee that exceeds 2 percent. After all, the broker’s job is to save the individual money on a mortgage. There’s little sense in paying a high broker fee to save money on a loan.
As such, it pays to be savvy when shopping for a broker. Don’t be afraid to negotiate or walk away from a broker who wants to charge too much for their services.
How to Know If a Mortgage Broker Is Right for You
Here are some situations in which using a mortgage broker could be a fit for your particular needs.
Homebuying is a new experience
If you’re new to real estate, don’t be afraid to ask for help from a mortgage lending expert. Put the task of finding a great lender into the hands of a broker who knows what they’re doing.
There’s no time crunch
Working with a broker can add time to the homebuying process. The broker will need a few days or weeks to build a borrower profile, source loans, and get back to you with information.
Don’t work with a broker if you’re on a very tight timeline and need to buy a house immediately. Otherwise, you could wind up having to wait — especially if the broker is busy managing a lot of other clients.
Of course, rushing into homebuying is generally not advised. But every buyer has a unique situation. In general, the more time you have to put into buying a home, the better off you’ll be in the long run.
There’s room in your budget for a broker
Buying a house can be very expensive. During each step of the home-buying process, consider whether you really need a particular service.
That said, borrowers with room in their budget may want to consider using a broker. Having the money to pay for a broker could make the loan search easier and more efficient.
Finding the best mortgage rate is a priority
Savvy borrowers understand the importance of finding the lowest possible interest rate. Just a few percentage points can make a massive difference in what you pay over the course of your mortgage loan.
If finding the best possible rate is a priority, then it’s probably a good idea to work with a trusted broker.
Control isn’t a big deal
Work with a broker only if you’re comfortable with the idea of someone else giving you a menu of loan options to choose from. People who want complete control over their own finances may prefer to find an online lender on their own to ensure they’re truly getting the best mortgage rates.
Online Mortgage Broker Pros and Cons
Here’s a breakdown of the advantages and disadvantages of working with an online mortgage broker.
- Save money
- Save time
- Find the best rates
- Access exclusive brokers and loans
- Benefit from mortgage experts
- Brokers can’t guarantee loans
- High fees
- Adds time to the closing process
- Some brokers may ask you to sign an exclusive contract
How to Find an Online Mortgage Broker
Now that you have a better understanding of how mortgage brokers work, here are some tips for sourcing one.
1. Ask for a referral
The best way to get a mortgage broker is by asking for a referral from an agent, friend, or family member. You can also contact a lender directly and ask if they can recommend anyone.
Of course, you can also use Google or open the Yellow Pages to source a local mortgage broker in your area. Most brokers are small, independent agents who work with community members like yourself.
2. Shop for the best option
Gather a list of all the mortgage brokers in your area and do some research to find out which is the best.
Ask people their opinions about working with them and look for online reviews. You may also want to ask the broker to show some examples of how they saved people money in their search for loans.
Remember this is like a job interview. At the end of the day, you’re hiring a broker to work for you.
Remember: There are a lot of sharks in real estate. If you’re not careful, you might get eaten.
3. Pick a mortgage broker
You could spend eons comparing brokers. But is that the best use of your time?
Ultimately, you don’t want to spend too much time vetting. Once you get the sense that a broker is trustworthy, and you like their rates, move forward with the process.
Just make sure you’re completely comfortable before signing an exclusive contract with a broker. Consider running the contract by an attorney to make sure there’s no hidden jargon that could come back to bite you.
Tips for Finding a Home Loan
Here are some tips to consider as you begin working with online mortgage brokers and shopping for loans.
Make sure your credit report is on track
One of the first things you should do in the loan application process is to check your credit history and see where you stand. Make sure that your credit cards are paid off and that you aren’t falling behind on other loan payments.
This is one of the most important metrics when shopping for a mortgage loan. Remember that a good broker will be able to find you a decent loan, but they can’t fix a bad credit score.
If your credit score is hurting, it’s worth seeing what you can do to improve it before proceeding with buying a home and taking on more debt. Otherwise, you’ll have a much harder time getting lower interest rates.
Run a credit check to be safe.
Have your paperwork ready to go
Spend some time gathering paperwork before you meet with a broker or start contacting lenders on your own for pre-qualification.
Both brokers and lenders are going to expect to have information like your credit score, employment history, and tax records. They’re going to need to plug in data throughout the process and so missing information can delay results.
Have your documents prepared ahead of time to expedite the process and avoid complications.
Securing a loan can take some time. It can also be frustrating if you don’t get the loan that you were hoping for at the rate you wanted.
Be patient, keep an open mind, and trust that the situation will work out in the long run. You may be on a longer timeline. But if you are persistent enough and willing to go through the lengthy approval process, you’ll walk away with a new home sooner or later.
Cast a wide net
Make sure that the broker you work with provides you with plenty of options. You’ll definitely want to shop around and find a lender that meets your exact needs.
Never forget that you don’t have to accept the first loan that comes your way. And chances are you shouldn’t.
Don’t buy until you’re ready
This is arguably the most important piece of advice you’ll receive when shopping for a home. Don’t buy until you are personally ready to take on the commitment of owning a home.
Just because you have the money or the ability to secure a loan doesn’t necessarily mean that you should buy one. Assess your personal situation and ask if you really want a home and why.
Make sure that you’ll be comfortable making mortgage payments and staying in one place for a while. Otherwise, you may regret taking on this type of responsibility.
Frequently Asked Questions
Here are answers to some of the most frequently asked questions about online mortgage brokers.
Is LendingTree a broker?
LendingTree isn’t a broker, nor is it a mortgage loan originator. Instead, the company is a loan aggregator. When you work with LendingTree, the company takes your information and ships it out to multiple lenders across its network of partners. Lenders will then reach out to you with offers.
LendingTree won’t do any paperwork or work with brokers to help facilitate a loan. It’s not a personalized service. It just helps source loans.
Do I need a mortgage broker?
It depends largely on your situation. Every borrower is different in terms of what they need. Some people may benefit from a mortgage broker, while others will see it as a waste of time and money.
That said, some lenders work exclusively with brokers. So you may need to work with one to access particular loans.
Only you can decide if a broker is right for your specific needs.
Is it better to get a mortgage from a bank or online lender?
There’s no way of answering this question outright. It all depends on the specific institution that’s offering you a loan and how much you’re getting.
An online mortgage lender like Better.com will typically offer a better digital experience than a mortgage banker. You’ll have access to more tools and educational resources. An online lender may also offer better rates.
But you won’t know until you actually start providing information and comparing actual offers.
A broker will help you determine who you should be contacting, and why.
Are online mortgage brokers safe?
Online mortgage brokers are typically safe to use. However, you should always do your due diligence to make sure that a company is reputable before providing any personal information.
Be wary about working with unknown brokers who use proprietary software and have few reviews. If you trust someone with your personal data — especially financial data — you need to be sure they can keep it safe.
The Bottom Line
First-time homebuyers looking for competitive rate quotes and reasonable mortgage insurance fees should seriously consider working with mortgage brokers — before going through pre-qualification or pre-approval.
A mortgage broker can provide end-to-end mortgage assistance, highlighting various loan programs and home purchase options. By working with a mortgage broker, you can access competitive loan terms with potentially lower monthly mortgage payments and origination fees.
Of course, you should also look at different lenders (we like Quicken’s Rocket Mortgage best), as well as Fannie Mae and Freddie Mac. It’s worth speaking to a loan officer at each institution to find out what terms they offer.
And if you have a credit union, consider checking whether it can offer you a potentially better rate. For further assistance, talk to your real estate agent about your options.
In the meantime, keep up the hard work of bolstering your down payment. Pretty soon, you’re going to be a homeowner, relaxing with a glass of lemonade in your yard and napping the afternoon away — living the true American dream.