What is a
Mortgage Broker?
A mortgage broker by definition is an agent who buys or sells mortgages for a principal on commission without having title to the property.
Let’s simplify it. A mortgage broker is a company/person that facilitates a mortgage between lender and client. I bet you're saying to yourself right now: “why don’t I just go directly to the lender and save myself money?” That would be true if all rates, costs and fees were created equal. However, they are NOT.
A mortgage broker will have access to wholesale rates which will be a lot lower than a retail lender. Mortgage brokers cannot charge a lot of fees that banks/lenders can charge. i.e. processing fee, junk fees, etc.
Wholesale rates are a lot better even compared to the same lender on the retail side. The reason that mortgage brokers are able to get wholesale rates are because:
- Unlike retail lenders, mortgage brokers do not cost the lender any money. For example, in order for you to get your loan through a lender they have to do the following:
- They have to advertise to get you to call or contact them.
- They have to pay a loan originator hourly and commission.
- They have to pay a processor to process the loan.
- They have to pay an underwriter to underwrite the loan.
- They have to pay managers, directors, VPs, presidents, owners (our guess would be that 10 people on each loan get paid).
- They usually have a lot of retail fronts, offices, call centers, etc.
- Mortgage brokers have lower overhead and not nearly as many mouths to feed on each loan so do not need to make as much as a lender to be profitable
- Mortgage brokers have to be aggressive on pricing as mortgage brokers do not have the name brand recognition that big lenders have
Overall, both the lender and the broker have their benefits and there really isn’t a wrong choice, just personal preference. But at the end of the day, your loan is going to a lender no matter if you use a broker or not.
