Reasons to use a Mortgage Broker
Written by Attorney Michael T. Chulak
A mortgage broker is an intermediary who brokers loans on behalf of individuals and businesses. Mortgage brokers originate more mortgage loans than mortgage bankers and banks combined.
While not all mortgage brokers are equal, a knowledgeable and experienced mortgage broker can provide benefits that are generally not available when a prospective mortgage borrower applies for a loan to a bank:
- Mortgage brokers nearly always have 10 to 20 wholesale relationships with lenders. These lenders either do not offer loans directly to the public, or they discount their fees to mortgage brokers, allowing brokers to offer either the same rates and terms, or even more competitive rates and terms than the lender offers to the public.
- Since mortgage brokers typically offer their clients the loan products of 10 to 20 lenders, they are often in a position to offer a loan applicant more choices which can work to the financial benefit of the borrower.
- Unlike banks that have limited business hours, most mortgage brokers will work evenings and weekends to accomplish the goal of closing your loan fast.
- A mortgage broker is working for you as your agent. The bank loan officer is working for the bank who is their employer.
- An important factor to consider is that mortgage lenders often have different criteria for approving loans. Mortgage brokers understand this and do their best to direct each loan application to a lender that is most likely to approve each loan request. Much to their disappointment, many people submit loan applications directly to lenders only to find out several weeks later that the lender will not approve the loan request. This happens often because some salaried bank loan officers accept loan applications for processing even when they are convinced their employer will not approve the loan. They accept these applications because they want to appear to be productive.
Fees paid to mortgage brokers vary depending upon supply and demand conditions. We believe the best way for a prospective borrower to negotiate a reasonable loan fee is to interview at least two mortgage brokers to determine what they charge for their services and then negotiate a fee structure that includes a minimum fee plus an additional fee based upon interest rate savings. The fee agreement should be in writing. An example would be a fee of 1% of the loan amount plus a fee of one-tenth of 1% for every one-tenth of 1% the interest rate on the loan is below 6%. In this example, if the mortgage broker produced a loan with an interest rate of 5.8%, the broker would receive a fee of 1% plus two-tenths. Such a structure maximizes the incentive for the mortgage broker to negotiate the best loan terms available for his or her client while assuring the loan applicant that there will be no last minute increase in the broker’s fee.
The law offices of Michael T. Chulak & Associates represents mortgage brokers, mortgage bankers, private money lenders, borrowers, and others in all types of real estate legal matters. Initial consultations are provided at no cost.
Call attorney Michael T. Chulak at 818-991-9019 for a no cost initial consultation regarding any legal matter.
Permission to reprint our HOA Questions and Answers is granted provided Michael T. Chulak & Associates (MTCLaw.com) is credited as the source.