Who pays mortgage broker pros?
Mortgage brokers are paid either directly by the borrower or by the lender you eventually close a loan with. Getting broker commissions from lenders is the most common method of compensation, typically amounting to between 1% and 2% of your total home loan amount.
In rare instances, brokers will directly charge borrowers for their services. In this case, the fee is usually the same, but it's added to your final closing costs.
A quick note here: Brokers can't charge more than 3% of your loan amount, per the Dodd-Frank Act. They also can't steer you toward certain lenders, tie their pay to your interest rate, or accept payment from both the lender and you, the borrower.
Is a mortgage broker worth it?
That depends. In many cases, mortgage brokers can help connect you to lenders and home loan options you might not have found otherwise. This is particularly helpful if you're a nontraditional borrower -- someone self-employed with a low credit score or facing other potential challenges. They'll know which lenders are best for your situation and can help point you toward the most viable option for your home purchase.
Another big perk of using a mortgage broker? They handle all the paperwork for you. Sure, you'll still need to gather up your documents and fill out an application, but only once. After that, your broker will use that application to shop around for your loan and find the best option.
Finally, your broker can also help keep your loan on track, working with the lender and responding to requests as needed. This could help you head to closing faster.
With that said, brokers do get paid, and even if you're not footing the bill, there's a chance the lender will account for the commission they'll owe in some form or fashion. This could mean a slightly higher interest rate (though maybe not higher than what another lender would have offered you) or added fees.
Mortgage brokers vs. loan officers
A mortgage broker isn't the same as a loan officer. Loan officers -- also called mortgage bankers -- work directly for a lender, bank, or credit union. They're only allowed to offer products from their employer, and they can't help you shop with other lenders or compare your options.
On the other hand, mortgage brokers have access to numerous lenders and loan products and aren't tied down to one company or its products. However, because of this, they also have less control over your loan application if something goes awry.
Should you consider a broker?
Mortgage brokers can be helpful, especially if you're new to homebuying or are a nontraditional borrower. Additionally, if you're short on time and just don't want the hassle and headache of applying with multiple lenders, they can also be a good option.
If you have a good handle on how applying for a mortgage works, are willing to shop around with several lenders, or are a pretty straight-and-narrow borrower (consistent 9-to-5 employment, decent credit, a manageable debt-to-income ratio), it may not be worth it.
Before you get a broker
If you're considering a mortgage broker, make sure you do your research. Ask for recommendations from friends and family and read reviews. Finally, interview your top two or three mortgage brokerage candidates and make sure you know how each is paid and what type of service you'll be provided.
Keep in mind that even if you use a broker, you're under no obligation to use the loan options they provide you. You're still free to shop with other lenders or choose another broker should you be unhappy with their service.