The Mortgage Broker Playbook: Ask the Right Questions
When do you actually need a broker
One of the most difficult things to wrap your mind around in the real estate business is the cost of trading. Whenever you buy or sell a property, there are so many hands in the pot that get a “piece of the action” in a trade that nearly every principal who walks out of a real estate closing scratches their head trying to understand how it is justified. It starts with broker fees and continues on to attorney fees, title insurance, property insurance, multiple state and municipal taxes, bank closing costs, and sometimes a mortgage broker’s fees, among others. When trading out of one property and into another, you can expect the overall transaction costs to exceed 12 percent of the trade. That is nearly one out of every eight dollars. Think about it: you need to sell a house for 113,000 dollars to have enough after the fees to buy the second property for 100,000 dollars, since you pay fees as both a buyer and a seller. As a point of comparison, you can trade 100,000 dollars’ worth of stocks for zero fees on many US brokerage platforms.
Now that we have covered the shocking cost of trading real estate, let us dig into the value. When using a bank for a mortgage, there are few closing costs that you can avoid. The big two are the real estate broker, which is 6 percent of the deal, and the mortgage broker, 1 percent of the loan amount. Nearly all the other fees, other than taxes, can be avoided by paying cash. As a side note, while you can avoid costs like title insurance by paying cash, it may be a very unwise idea. So, if you put down 20 percent and borrow 80 percent, firing both brokers will save you 6.8 percent of the cost of the property, a sizable amount. But is it a smart move?
Most first time borrowers assume a mortgage broker and a loan officer are the same thing, but they are not. A loan officer works for a single bank and can only offer that bank’s products, which is great if you already know you want to borrow from that institution or you qualify for special relationship pricing. A mortgage broker, on the other hand, acts as an independent matchmaker, shopping across multiple lenders to find the best fit for your financial profile, property type, and timeline. Brokers often have access to niche programs or lenders you would never find on your own.
As with all professionals, real estate and mortgage brokers must provide value to justify their fee. While some clients may simply be looking for someone to unload the paperwork onto, too much headache finding a mortgage, borrowers like me are looking for a savvy market operator who knows the players and the hidden pockets of value. Measuring the value of a mortgage broker is simple: we compare their fee to the mortgage rate they can get. If a mortgage broker can get you a rate that is 0.5 percent lower for a 30-year mortgage, you get 28 years of savings for the price of 2 years. Not a bad deal. Sometimes, a broker can find a bank that will lend after all your individual effort failed. In those cases, only you can do the value calculation for determining what a finder’s fee should look like.
Another interesting twist in this market is who pays the broker’s fee. Sometimes we mere mortals need help finding a good deal, and sometimes the bank has the same problem. Sometimes they need to lend more badly than you need to borrow. So, in some cases, the bank will cover the mortgage broker’s fee. Counterintuitively, there are cases where hiring a professional gets you the best deal and costs nothing more. As my mother likes to say, “If you do not ask, the answer is always no.” So, when talking to brokers about the loans they can source, always ask specifically who pays the broker fees for each loan. Transparency matters: for every loan option a broker presents, you want to know who is paying them, how much, and whether that changes the rate you are being quoted. Once you understand the incentives, you can evaluate the deal with clear eyes instead of blind trust.
A mortgage broker becomes especially valuable when your situation does not fit neatly into a bank’s underwriting box. Self-employed borrowers, investors with multiple properties, people with complex income streams, or anyone buying an unusual asset often run into rigid bank rules that shut the door before the conversation starts. Brokers know which lenders specialize in these edge cases and can surface options you would never find on your own. They are also useful when speed matters, since some of their lenders can move far faster than traditional banks. In short, the more non-standard your profile or property, the more likely a broker is the difference between finding a lender and not.
By this point I am sure you have already asked yourself if I, the author, use mortgage brokers. My answer: always. If you are just dealing with single family houses that are ready to rent and your credit is good, you probably will find little value. On the other hand, if you are buying commercial, multi family, or anything else more complicated, a broker will nearly always be worth their fees. Even better, my mortgage broker is experienced and market savvy. He does not just collect bids; he actively negotiates the rate on my behalf as well as deal terms with significant financial implications, like prepayment penalties. While you cannot negotiate with the big banks like Citi, Wells, or Morgan, many local banks know that good borrowers are competitive. If your broker is good, they will also know which banks need to place loans to make their quotas.
While brokers can unlock real value, it is worth being clear eyed about the tradeoffs. Some brokers work with a limited panel of lenders, which means the shopping they do may not be as broad as you assume. Others may have preferred lender relationships that subtly influence which options they present first. Banks can also beat brokers on certain products, especially jumbo loans or situations where you have strong deposits and qualify for relationship pricing. And because brokers sit between you and the lender, communication or underwriting timelines can vary more than if you were working directly with a bank. None of these are deal breakers, but they are worth knowing so you can ask sharper questions and avoid surprises. My mortgage broker is Sam. If you are looking for a great mortgage broker in the New York City area, reach out to him. I am sure he will find you some great financing options.
Now that you know how brokers get paid, what they actually do behind the scenes, and where their incentives line up or do not with yours, you are in a far stronger position than most first time borrowers. The action items are simple: ask every broker who pays them and how much, confirm the range of lenders they work with, compare APRs instead of headline rates, and make sure their experience matches your specific borrower profile. The more you understand the landscape, the easier it becomes to spot a great broker and avoid the ones who are not adding real value.
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