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Think of a mortgage broker as a matchmaker. But instead of helping people find their soulmates, a broker matches homebuyers and lenders. If you choose a mortgage broker, you work directly with her, and she acts as an intermediary between you and the lender.
Mortgage brokers work for brokerage firms, and both federal and state laws regulate them; most states require these firms to be licensed. Many brokers are members of the National Association of Mortgage Brokers (NAMB), which offers three levels of certification:
- General Mortgage Associate (GMA). This entry-level certification shows a threshold level of professional knowledge about the mortgage industry. To receive GMA certification, a broker must pass an exam, but no industry experience is required.
- Certified Residential Mortgage Specialist (CRMA). Brokers with this level of certification have at least two years' experience under their belts. They must also pass an exam and earn at least 50 qualifying points, which are awarded for professional activities such as education, getting other certifications, experience, and leadership.
- Certified Mortgage Consultant (CMC). This is the highest level of certification NAMB offers. It requires five years of experience in the industry, passing an advanced exam, and a minimum of 100 qualifying points for professional education and activities.
Here's what you can expect a mortgage broker to do:
- Gather information about your finances, employment, and credit history and assess your eligibility for a mortgage based on that information
- Identify loans from a variety of lenders that meet your needs
- Present those loans to you, along with a clear explanation of how they work and what the terms mean
- Help you get preapproved for a mortgage
- Help you apply for a mortgage, from gathering documentation to filling out the paperwork
- Present your mortgage application to a lender
- Keep track of all the conditions you must meet before closing, acting as a liaison between you and the lender, home appraiser, surveyor, various insurers, and so on
- Facilitate the closing, making sure that all your documents are in order and that the lender transfers the funds
Mortgage brokers typically get paid 1 to 2 percent of the loan amount. They may collect money through direct fees (called processing, origination, or brokerage fees), a slightly higher interest rate on your loan, or a combination of the two. You pay the mortgage broker, so be aware that these fees are open to negotiation. A good mortgage broker should be able to match you up with a loan that pays her fees by finding a lower-cost loan that you could find yourself.
About a two-thirds of American homebuyers get their mortgage through a broker; the rest work directly with a lender.
As with your real estate agent, talk with several mortgage brokers and check references before you agree to work with one. In fact, it's even more important to check out potential mortgage brokers thoroughly - in most states (California is an exception), mortgage brokers have no fiduciary duty toward their clients. In plain English, that means the broker has no legal obligation to put your interests before his own. Good mortgage brokers are ethical and do serve your best interests, but you don't want to find yourself in a situation where greed makes a broker steer you toward a loan that's not the best deal for you.
Before you agree to work with a mortgage broker, get the answers to these questions:
- Are you licensed (this is not required in all states) and/or do you belong to any professional associations, such as NAMB? Membership in one of these associations suggests a level of professionalism and industry experience.
- How long have you worked as a mortgage broker? You want to work with a broker who's successfully matched buyers and lenders for at least two years.
- Do you specialize in residential mortgages? For this question, "yes" is the answer you want to hear.
- How many residential mortgages have you brokered in the past year? Look for someone who's successfully brokered 10 or more mortgages.
- I'd like to make sure the broker I work with has my best interests in mind. What kind of fiduciary duty do you feel you have to clients? Make sure the broker convinces you that she's working on your behalf and not putting herself first.
- Could you give me the names and contact information of three recent clients to serve as references? If the broker can't provide references, move on.
Check references the same way you checked them for your real estate agent. Ask these questions:
- When did you work with the broker?
- Did she listen to your needs and concerns?
- How responsive was she? Did she answer your questions clearly and give you information in a timely manner?
- Did she present you with a variety of loan choices?
- Are you happy with the loan you chose?
- Did the broker help you throughout the process of getting a loan?
- What did you like about working with this broker?
- What frustrations did you experience in getting a mortgage?
- Would you choose this broker again if you were in the market for a loan?
Satisfied clients are a good indication that you've found a good broker.
