What is a Mortgage Broker?
The mortgage broker is an intermediary between the lender and the borrower. The lender requests the mortgage broker to seek information regarding the borrower’s credit history and financial position. The mortgage broker then looks into the borrower’s credit history and the condition of the borrower’s assets, liabilities, and income. Based on this information, the lender determines if the borrower can afford to repay the loan.
A mortgage broker works as an independent intermediary who brokers mortgage loans for people or companies. The mortgage broker is responsible for evaluating the mortgage loan to be provided and arranging pre-approval screenings and title insurance. This person also verifies the borrower’s credit history, qualification for loans and income, and other documents relating to the borrower. The Mortgage Broker helps in putting together the loan package in the best interest of the borrower.
The mortgage broker informs the bank about the borrower’s present financial circumstances and arranges for pre-approval screenings of the home loan. He then gives the bank a detailed description of the borrower’s current monthly income and expenses. Based on the details provided by the broker, the bank then decides whether to approve the borrower’s application for a home loan. In case of no approval from the bank, the broker suggests a short sale of the property.
A mortgage broker typically requests an upfront fee from the lender. He then compares the rate offered by the different lenders on the basis of the prime interest rate, tenure and credit history. If the broker finds a better interest rate, he negotiates for a lower interest rate for the borrower. This further reduces the cost of the loan for the borrower.
A mortgage broker normally helps borrowers with their post-approval counseling. This includes educating the borrower on how to repay the loan, reduce costs, avoid foreclosure and correct management of personal finances. He also trains the borrower how to deal with the lender and correct bad credit practices. In addition, he advises the borrower on where to find sources of funds in case of an emergency. Finally, he provides tips on money management and budgeting.
A Mortgage Broker is Required to be Relevant: Under the Real Estate Settlement Procedures Act, all persons dealing with mortgages must be registered and licensed. The Real Estate Settlement Procedures Act also specifies how a Mortgage Broker should act. It requires a Mortgage Broker to submit application forms to appropriate regulatory bodies and obtain pre-approval from banks. The Mortgage Broker is required to provide a comprehensive disclosure to borrowers and provide post-approval counseling if requested by the borrowers.
Mortgage Brokers Don’t Make Money From Loans: Many people think that Mortgage Brokers earn huge commissions on mortgages approved by the banks. But generally, the commission amount is low when compared to the fees earned. For example, if a client borrows twenty thousand dollars from the bank and the mortgage broker pays a commission of five hundred dollars, the actual commission earned would be only one dollar. Similarly, a mortgage broker makes very little if a client applies for a loan online. When a lender approves the application online, there is no need for the broker to personally visit the client and obtain information like credit score, loan amount, etc.
In short, Mortgage Brokers play an important role in the provision of housing finance to the needy. But, it should not be thought that a Mortgage Broker is the only person who can refer a borrower to appropriate sources. All the banks and lending institutions have a web portal where a borrower can fill in an application and get informed of various programs that the borrower is eligible for. Similarly, they have customer service representatives who can guide the borrower through the entire process. To avoid any misinterpretation, it is recommended that the borrower check the background of Mortgage Brokers before accepting their services.