Mortgage Brokers

As opposed to direct lenders who provide the homeowner directly with funds, mortgage brokers are the intermediary, the independent party acting as the customer's agent. They shop the market for you, take care of all the paperwork, and bring you the best rates and plans. Brokers are in constant contact with mortgage companies across the country, and might be able to direct you to a lender that is not located in your area, but is licensed to lend funds in your state.

But, you cannot simply trust that the broker will act as your agent in good faith. Unfortunately, there happen to be a lot of predators in the mortgage industry, and they are looking to take advantage of the inexperienced borrower. In order to protect yourself, you can draw up a mortgage broker commitment ahead of time that delineates their service fee and other charges. Have your broker sign and date it; most will not object to such an arrangement, and it will give you the protection you need.

Your commitment letter should outline all the parameters of your relationship, including:

• A detailed account of all fees and charges, no matter how small, including the broker's fee, any administration fees, the application fee, processing fees, the origination fee, as well as the cost of the credit report and the appraisal (if applicable).
• How the broker's fee will be paid--hourly charge, percentage of points, pre-set dollar amount, etc.
• A confirmation that the broker will 1) act directly as the homeowner's agent, to secure the best possible rate as well as a loan program tailored to fit their financial needs 2) lock the interest rate at the specific time indicated and for the time period indicated.
• The broker should also disclose the wholesale loan prices from the lender as well as provide a copy of the lender's commitment letter.
• Any payments to third parties should be paid directly by the homeowner and credit should likewise be given directly to them.

Advantages and disadvantages: the advantages of dealing with a broker are numerous, including obtaining a better loan program and wholesale rates that are 3-8% lower then the standard rate offered by most lenders. But, they can also drum up hidden fees in many different ways, and so it is best to always be on your guard and always get in writing. Some people prefer direct lenders because although they might quote higher prices, there is no broker's fee to pay, which might be substantial. In any case, the way to decide which is best for you is to consider the savings: of wholesale prices compared with retail, and of better market shopping. And, if the money you would save outweighs that of your broker's fee, you would benefit by using a broker.

If you are thinking about going with a Direct Lender instead, be sure to visit our page on Mortgage Companies.