What Is A Mortgage Broker?

A mortgage broker is a third party who facilitates a mortgage between a borrower and a lender. Unlike a bank or credit union, the mortgage broker originates but does not fund the mortgage loan. A mortgage broker can be compared to a stockbroker, a real-estate broker, or an insurance broker, who acts as an independent agent to negotiate a purchase, sale, or contract on the behalf of a client. Essentially, a mortgage broker functions as an intermediary between the borrower and the lender. Mortgage brokers work closely with mortgage lenders and sometimes they are able to negotiate with the lender to find the best financing option for the borrower.

As the liaison between the borrower and the lender, the mortgage broker analyzes the borrower's credit report and shops for a proper mortgage or loan product that best suits the borrower's circumstances. The mortgage broker will usually walk the borrower through legal disclosures and gather relevant documentation, such as financial records. When the mortgage has been applied for and approved, the mortgage broker will submit all required information to the lender and an escrow company. Because the mortgage broker finds and originates the loan, processes the required documentation, and passes the mortgage to the lender, the closing time can be significantly reduced. An additional benefit to using a mortgage broker is that, as they interface with a large number of mortgage lenders, they are able to offer borrowers more loan options than traditional banks and credit unions. Therefore mortgage lenders can be a viable option for borrowers with less than exemplary credit.

Loan officers at banks, credit unions, or other lending institutions also process and facilitate mortgage loans. However, the fundamental difference between loan officers and mortgage brokers is that loan officers can only offer their clients the loans offered by their institution or lender. On the other hand, acting as an independent third party, a mortgage broker can choose from a variety of loan products ranging from local to national lenders.

By definition, the mortgage broker will charge a fee or receive a commission from the lender for acting as an agent or negotiating and facilitating the mortgage on behalf of the borrower. When using a mortgage broker, borrowers are advised to ask for an upfront disclosure of costs. This may flag any hidden fees, such as documentation processing fees, charged by the mortgage broker to mark up the true loan price in order to make a profit. Generally, mortgage brokers are only required to disclose all information after the loan application has been submitted.