A good mortgage broker is a source used by many home buyers for getting their mortgage. They’re able to work with multiple lenders, sometimes referred to as ‘wholesalers’, who offer their loan products to potential home-buyers.
Whenever you work along with a broker, he’s the one who does the first steps in your loan process. He completes the application, obtains your credit report, conducts your appraisal, and verifies your employment.
Once the broker finishes these steps, he conducts your underwriting process. This is what determines your risk in regard to being a borrower. When your loan closes, you won’t need to use your broker. You will now be working with your lender.
The wholesale lender will quote mortgage brokers their wholesale price for your loan. The broker will then decide what price he will offer you. The price that you get quoted by the broker usually includes a markup, mainly in ‘point’ form. Each point equals 1% of your total loan amount.
This means that if your broker charges you one point on a loan of $100,000, then he got $1,000. You need to keep it in mind that whatever number of points your broker ends up charging you, it will be in addition to all the interest that you’re charged by your loan provider.
There’s not really any systematic way that the brokers can set up their markups. Mostly you can expect your broker to set their markup about as high as they’re able to get away with. That’s why it’s crucial for borrowers to try and negotiate the loan all they can. They should enter into the process ready to negotiate, because many times the markup that a broker includes is not the lowest possible amount that they’re willing to accept.
There are many benefits to using mortgage brokers though. You’ll get a lot better deal when working with your broker than on your own with your lender, even though they markup the price.
Mortgage brokers enjoy the luxury of dealing with several various lenders, and are in the position of giving you the lowest offer. You might want to consider working on your loan with an ‘upfront’ broker, which is a variation of the traditional broker.
The upfront broker will conduct business a bit different from a traditional broker, maybe a bit more ethical.
Per your request, this type of mortgage broker will disclose, in writing, your wholesale value for your loan, and the markup as well. They keep no secrets, thus the name ‘upfront’ brokers. You’ll know just exactly what you’re paying for your loan, and where the money goes to each party.