A mortgage broker acts as a middleman between mortgage borrowers and different lenders. However, they do not use their own capital to originate loans. A mortgage broker connects lenders with borrowers on the basis of the their needs and financial situation, identifying the best mortgage for each unique borrower.

The broker gathers necessary documentation from the borrower, such as income, assets, bank statements, and employment documentation. They will also pull a credit report, assess credit scores, and look at other debts, such as credit cards and personal loans. The broker will complete the loan application and determine the appropriate loan amount, loan-to-value ratio, loan terms, and loan type, and then submit the loan to a lender for approval and underwriting.

The mortgage broker can save a borrower time during the application process and money over the life of the loan. The mortgage funds are lent in the name of the mortgage lender, and the mortgage broker collects a commission fee compensation for their services. The broker only gets paid when the loan transaction is completed.

Mortgage broker vs. loan officer

Unlike a mortgage broker, a loan officer is a representative of a financial institution, such as a bank or credit union, who offers direct assistance to borrowers taking out residential mortgage loans. Loan officers are often known as mortgage loan officers (MLO). The loan officer is the contact for most borrowers applying for home loans from financial institutions.

Finding the right mortgage can be handled online, but most consumers prefer a well-informed guide for such a costly and complex transaction. In fact, the reason why financial institutions continue to have so many branches is so they can connect loan officers for further loan options to potential borrowers.

Once a borrower agrees to proceed with a loan officer, the loan officer helps prepare the application and then passes the application along to the institution’s underwriter, who assesses the creditworthiness of the potential borrower. If the loan is approved, the loan officer is responsible for preparing the appropriate documentation and the loan closing documents.

The loan officer will collect the appropriate closing documents for a mortgage or other loan. Some loans are more work than others, such as secured loans versus unsecured loans. Mortgage loans require a hefty stack of documentation due to the many federal, state and local regulations that pertain to them.

There is some overlap between a mortgage broker and loan officer. Loan officers are knowledgeable about various loan products, whether buying or refinancing a home. They are well versed in the mortgage market and can advise borrowers on how to find the right mortgage for them. They, like brokers, can also offer insight on loan eligibility, being responsible for the initial screening process.

In contrast, a mortgage broker works on the borrowers behalf to find the lowest available mortgage rates and appropriate loan programs available through multiple lenders. The number of lenders accessible to the borrower, however, are limited based on the broker’s approval to work with each lender.

Brokers do not receive compensation unless the loan closes. It’s in the brokers best interest to work with the borrowers on a more personal level. If a loan originated through the broker is declined, the broker will then apply to another lender. Meanwhile, if a loan originated through a loan officer is declined, no further action is taken with the financial institution.

How much do mortgage brokers charge?

Whether buying a home with a real estate broker, real estate agent, or for sale by owner, a mortgage broker can be used. Mortgage brokers are usually paid a commission—one to two percent of the loan amount. This differs from loan officers, which are paid a salary and are not incentivized by loan volume or amount.

How do mortgage brokers get paid?

Mortgage brokers are typically paid by commission. That commission is paid by either the borrower or lender upon closing of the loan. It’s usually paid by the lender, in which case the broker may advertise a “no-cost” loan. However, in those cases the broker’s commission might still be baked into the loan via a higher interest rate. The broker may offer different fees based on whether the lender or borrower pays the rate.

The mortgage market, home prices, and loan competitiveness will help determine the commission rate. In more competitive markets, such as bigger cities with high-priced properties, have rates as low as 0.5 percent. Federal regulation, notably Dodd-Frank, limits mortgage broker fees to no more than three percent.


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Mortgage broker pros and cons

If you already have a close relationship with a local credit union or bank, you may be wondering how you can benefit from a mortgage broker—or if you would benefit at all. Here's the pros and cons. 

Benefits of using a mortgage broker

Firstly, working with a mortgage broker saves time and legwork for the borrower. They know how to navigate the mortgage markets and can act as a guide. Mortgage brokers have frequent connections with a broad range of lenders. A broker can steer borrowers away from certain mortgage companies with onerous payment terms and the like.

Secondly, brokers have better access to lenders. In fact, some work exclusively with mortgage brokers, relying on them to bring in leads and business. You can call lenders directly for a mortgage, but often, brokers retrieve special, lower rates from lenders due to the business volume they provide. Brokers can also help manage any other associated fees, such as application, appraisal, and origination fees.

When should you not use a mortgage broker?

Obviously, a mortgage broker that expects clients to cover their commission may not be a good fit. (Keep in mind that this shouldn't automatically disqualify a broker, especially if the fee is low.) Some real estate investors and home buyers may also prefer to do their own loan shopping and talk to bank loan officers directly. 

But generally, most of these cons can be avoided by carefully interviewing mortgage brokers. 

For instance, some borrowers complain that mortgage brokers are biased or incentivized to use particular lenders, even if they don't offer the lowest rate or best terms. 

Additionally, because mortgage brokers are not the loan originator—meaning they don't directly fund loans—they can't always be as aggressive as a traditional mortgage lander would. Direct lenders may have more flexibility to work up a loan that suits your unique situation. However, if a mortgage broker has a good relationship with lenders, this may not matter. 

How to find a mortgage broker

Finding lenders near you is easy—consider reading online reviews prior to picking one. Here are some tips on finding the best broker—and getting the best deal:

  1. Referrals work best. Ask someone you know or a friend of a friend who has recently bought a house to share their experience—good or bad.
  2. Leverage your current bank. Reach out to your current financial institution for references or mortgage brokers they use. You already have a relationship with them and it’s in their best interest to be as helpful as possible.
  3. Ask your real estate agent. They can offer guidance on local brokers that have solid reputations.

Questions to ask mortgage brokers

Before choosing a broker, be sure to ask plenty of questions. Likely you'll be most interested in mortgage rates, but before committing, ask:

  • Do you have a list of lenders you work with?
  • Can you provide a complete list of fees that are typically charged and the amount?
  • What’s your typical commission rate and is it paid by the borrower or lender?
  • Do you have different rates for lender-paid versus borrower-paid commission?
  • Will the lender waive some fees, such as the credit report or appraisal?
  • What are the typical down payment requirements?
  • Do you work with FHA-, VA- or USDA-approved lenders? 
  • What are the typical turnaround times? For pre-approval and for the time from choosing a house to closing.
  • Can you provide references?
Recommended reading
Related terms
Freddie Mac
Federal Home Loan Mortgage Corporation (Freddie Mac) A private corporation founded by Congress, the Federal Home Loan Mortgage corporation's mission is to promote stability and affordability in the housing market by purchasing mortgages from banks and other loan makers.
Cash-Out Refinance
A cash-out refinance will replace a person’s existing mortgage with a new home loan for more than is currently owed on a property. The difference is refunded to the property owner in cash and can be spent on home improvements, debt consolidation, or any other financial needs. In order to use a cash-out refinance, a property owner would need to have built up equity in the property.
Fixed Rate Mortgage
This is a fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan.