Often, people confuse mortgage brokers with lenders, but brokers offer the loan products of various lenders, while a lender provides the actual loan money to the borrower. Essentially, a mortgage broker is a loan provider who serves as a liaison between borrowers and lenders. A broker can work within a firm or independently.
A mortgage broker doesn't loan money. Instead, he or she works with borrowers, assisting them in finding appropriately matched mortgage loans. Typically, he or she will learn the needs of the borrower and do the work of shopping for the best loan deal from lenders offering that particular type of loan. Brokers usually work with numerous lenders, attempting to match the right lender with each individual client. Some brokers actually have hundreds of lender contacts. Because they have so many lenders from which to choose, brokers are more likely to find loans for borrowers with special needs, like problem credit, than individual lenders.
Mortgage brokers accept applications from borrowers and seek to lock in rates and terms with lenders. They also provide required state and federal disclosures. Additionally, brokers gather all necessary documents, including, but not limited to, credit reports, employment verifications, asset disclosures, and property appraisals. Once an application file is deemed complete, the broker submits it to the appropriate lender, who then handles loan approval and disbursement.
Frequently, a mortgage broker will provide basic credit counseling in an attempt to assist borrowers with correcting credit issues. He or she may also advise borrowers on ways to obtain better loan rates. Brokers answer questions and assist borrowers in understanding both the application process and loan details as well. They only offer assistance before the loan process is complete. Once the borrower has obtained a mortgage, the broker is effectively out of the loop and all questions must be asked of the lender.
Brokers earn commissions in exchange for bringing borrowers and lenders together. Usually, the broker's commission is paid indirectly by the buyer, in the form of closing costs or additional loan points. The mortgage broker receives payment when the loan is closed.