A lending institution (bank, credit union etc) can only offer the products from their particular institution. They do not have the flexibility to fit a loan to your individual needs but must follow the lending criteria set by their particular institution. A Mortgage Broker, on the other hand, has access to banks, credit unions, trust companies, and other financial institutions. They represent you, not the lenders and they are not limited to one lender.
Benefits of a Mortgage Broker
The more experience a mortgage broker has and the greater his /her network of lenders the better offers he is able to find that best suits your financial situation.
Mortgage Brokers will identify your needs (short and long term) to offer you the best value in terms, interest rate, repayment schedules and loan products.
Mortgage Brokers work with everyone regardless of their credit score, history and DTI ratios. They know which lenders offer the best terms and rates to those with credit issues. As well, if you require a larger loan than your bank will approve they have access to lenders that specialize in mortgage loans that are not backed by FHA, VA or are conforming loans.
If you shop your loan to several banks and lending institutions looking for the best terms and rates, each bank will do a hard pull on your credit bureau. A mortgage broker, you apply once, they make one credit inquiry and that inquiry is shared by all lenders they 'shop' your application to.
A mortgage broker specializes in mortgages and can walk you through all of the costs, products, current rates and closing costs. They will disclose how they are paid and give you all costs for the loan.
They will tell you how big of a loan you can afford and how much of a down payment you need. With their knowledge and expertise, they can take the confusion out of finding a mortgage loan.
How are Mortgage Brokers Paid
Mortgage Brokers can be paid in several ways. Fees are paid by the buyer, lender or both. If it is the lender, then the mortgage broker would receive a commission on the total amount of the loan. The commission is usually 1%- 2% of the loan amount and is added to the loan amount and fees. It is usually not an upfront fee, but before you hire a mortgage broker ask how they are paid so you know exactly what to expect.
If you have a complaint about a Mortgage Broker, you can contact NAMB (National Association of Mortgage Brokers. Of if you want to confirm that they have a Mortgage Brokers Licence contact the state regulator in the state where they are doing business. For general information on brokers in your state, contact the NAMB affiliate state association.