Why Use a Mortgage Broker When Buying?

Reader Question: “My husband and I are planning to buy a home soon. We have heard good and bad things about using a mortgage broker to find a loan? Why do people use mortgage brokers and when is it a good idea?”

In many cases, first-time home buyers don’t even realize they are using a broker. All they know is that they requested some quotes online, perhaps, and were later contacted by a person who turned out to be a mortgage broker. In other cases, buyers understand the difference between lenders and brokers and choose the latter for some very specific reason.

I’ll get into the pros and cons of this in just a moment. But first, I want to offer some basic definitions, to make sure we are on the same page. Here’s the difference between a mortgage broker and a lender:

• Lender - This is the bank or financial institution that actually lends you the money for the home. There are national lenders, such as Wells Fargo and Citi, as well as local ones. These organizations are also referred to as primary lenders, which means they offer loans directly to consumers.
• Broker - This person is basically a middle-man between the borrower and the primary lender (defined above). Mortgage brokers usually have access to a network of lenders, which helps them match the best loan to a particular borrower.

With those definitions out of the way, let’s talk about why you would use one over the other. We will also talk about the pros and cons of using a broker to find a loan.

Why Use One?

I just touched on the main reason why people use mortgage brokers when buying a home. It can be summed up in two words — more options. If you go straight to a bank and apply for a home loan, you will only get the best rates and terms for that particular lender. But a different lender might have better options for you, given your financial circumstances. This is where it helps to use a broker to find a loan. He or she can “shop” through a wider variety of lending institutions, in an effort to find the best loan for your situation.

Pros and Cons of Using a Mortgage Broker

We just talked about the pros of using a mortgage broker to find a home loan. You have access to a wider range of financial products. This is the primary benefit that motivates people to use a broker in the first place. In theory, this would help you secure the best interest rate and terms on your new loan.

But what about the cons of using one of these folks? Are there any disadvantages to this “middle man” approach? Yes. You may have to pay additional fees when you go through a broker instead of applying directly through the bank.

There is also a certain negativity associated with mortgage brokers, which results from various deceitful tactics they use to lure in borrowers. A favorite technique among the “sharks” is the low-rate teaser offer. The broker will offer the consumer an enticingly low interest rate, but will then tack on points and other fees that boost their own earnings.

Here’s the bottom line. If you decide to use a mortgage broker when shopping for a loan, you need to do your homework. Most importantly, you should find out who is paying the broker’s fees — you or the lender. You should also research the person’s background, and this is where the Internet becomes helpful. You’d be surprised what you can find by doing a Google search for a broker’s name, or the company’s name. You can also check the Better Business Bureaus website to see if any complaints have been filed against the company.

This article answers the question: Why use a mortgage broker when shopping for a loan? If you have a question of your own, click on the “Ask a Question” button located in the upper-right menu area. We will post a response right here on the blog.