Are there any disadvantages to getting a mortgage from a mortgage broker?
It seems like they would be in your best interest because they save time by shopping around for you. Does it typically cost money to get a mortgage one? Do they work on commission? Do they get more money from selling certain products>?
Read about Upfront Mortgage Brokers. That site has a bunch of information on mortgages and brokers, including mistakes to avoid when shopping for a mortgage.
You can also find lenders with upfront pricing. I've used it for shopping and you will find very competitive rates.
I'm wary of brokers. When we sold our house, the buyers (young first time buyers) got screwed by an unscrupulous broker and didn't actually have a loan lined up. Delayed closing by 2 days while they scrambled to find a legit lender who could put together funding.
The one time we used a broker (our first time), we got a deal that wasn't really as good as it should have been. (Hindsight.)
Short answer: It depends :)
It should generally be cheaper to get a loan directly from a bank, but often a mortgage broker can find you deals that you might not be able to get with a local bank. If you are refinancing, the cheapest option of all is usually to go through the bank that holds your existing mortgage.
As for how mortgage brokers make their money, there are two ways. The first is on the "front end" through fees (origination fees especially) that go directly to them. The second and less obvious is on the "back end". This is where they make money by giving you a loan at a slightly higher rate than the lender was willing to give you. So, let's say they find a lender that will give you a loan at 5.25%. They offer that loan to you at 5.5% and pocket the extra .25% when the bank takes it over.
There are not only disadvantages,Mortgage Broker has many advantages.
When you're ready to purchase a home do you know who to go to for your mortgage loan? Do you know the difference between a mortgage banker and a mortgage broker? The main difference between the two types of lenders such as:
1. Mortgage Broker - they originate loans with the intent of selling them to wholesale lending institutions;
2. Mortgage Banker - they are lenders that are big enough to originate loans plus package pools of loans that they then sell to one of the big three lending institutions - Fannie Mae, Ginnie Mae, or Freddie Mac, and also jumbo loan investors.
The mortgage broker does not underwrite or fund the loans, these steps are performed by the wholesale lender, the above big three and jumbo investors. Usually the broker has a relationship with one of the big institutions and they use them for the funding of the majority of their mortgage loans. One of the advantages of using a mortgage broker is that they can choose the correct lender for a borrower in an unusual situation because they know the hot spots of various wholesale lenders. The most important advantage is that if your loan gets declined for some reason the broker just has to repackage your loan with another set of loans and submit it to a different wholesale lender.
Mortgage brokers are utilized by the wholesale lenders as their loan officers. The broker gets a lower rate from the lender and then the broker will add onto that rate his fee. This usually adds up to close to what you would have received if you had gone directly to a mortgage banker unless the lender has added on a high compensation for himself. An advantage of using a mortgage broker is that some of the most highly qualified loan officers in the business work for mortgage brokers. But, this is not always the case because mortgages brokers also tend to hire new brokers who are getting their experience working for the mortgage broker company.
So, there is always a chance that you may get a new broker just entering the business. This could cause you some difficulty if there is something problematic about your property or your financial situation and the new guy hasn't come across that situation before. Where an experienced mortgage broker probably would know exactly what to do in most situations, an inexperienced one may not. You must be very careful when choosing your broker and try to get an experienced one. Another thing to look out for is the greedy loan officer, and there are unscrupulous characters in the mortgage business just like anywhere else. They may try to put one over on you by charging you a much higher fee for their services than an honest loan officer would. It is very important for you to shop around and be sure to ask about fees and costs of services rendered to you.
