While the most advantageous reason to use a mortgage broker might be their ability to shop your rate with multiple lenders, you still need to put in the time to comparison shop.
There are three main reasons I can think of offhand to explain this argument.
At the same time, don’t forget to compare banks vs. brokers too if you want to truly exhaust all your options.
Remember, gathering several mortgage quotes is a proven method to land a lower interest rate on your home loan, backed up by real studies.
Yes, it takes more legwork, but the return on investment can be enormous when you look at the fraction of time involved to the potential money saved.
1. They Are Individuals with Different Skill Sets and Personalities
- Mortgage brokers are individuals just like real estate agents
- This means they have various experience levels and unique personalities
- You’ll want to choose one that is both competent and easy to work with
- Who takes the time to explain how everything works and answers your questions
Let’s talk about why you should compare mortgage brokers, even if they work with multiple lender partners.
First off, mortgage brokers are often just individuals with their own small business (though larger shops exist as well).
This means they have unique personalities and hold different skill sets, with some more experienced than others. They could also have different work hours, availability, and so on.
Some may utilize assistants, while others may prefer to work with you hands-on.
You might find one broker that’s been working in the mortgage industry for two years, and another that’s been at it for 30 years or longer.
Chances are you’re going to favor the veteran if faced with a decision between the two.
But if you don’t even put in the time to check out more than one, you won’t even realize what you’re missing.
This isn’t much different than only obtaining a single mortgage rate quote from a retail mortgage lender.
Sure, the broker has the advantage of shopping your loan scenario with multiple wholesale lenders on your behalf, thereby providing you with several quotes, but it’s still not an exhaustive search.
Obviously, you want to choose a broker that is competent enough to get your loan to the finish line, especially if it’s an important, time-sensitive home purchase.
And you’ll also want to work with someone who is honest, trustworthy, and perhaps friendly and available if and when you have mortgage questions.
Similar to a real estate agent, it can be worth your time to speak to a few different brokers to feel them out before proceeding to work with one.
Sure, referrals are great (and easy), but make sure you like the person as well, and vet them yourself to ensure they’re a good fit.
2. Brokers May Have Distinct Wholesale Lender Partners
- Mortgage brokers can work with an unlimited number of wholesale lenders
- Some may be approved with a ton of different companies, while others only work with a few
- Their mortgage rates and available loan programs will be dictated by who they choose to partner with
- This means you might have more options and/or lower rates with one broker versus another
That brings us to reason number two why you need to compare mortgage brokers. They may have different wholesale lender partners.
Remember, one of the main reasons to use a mortgage broker is their ability to shop your loan with several lenders.
As opposed to a retail bank, which just has one set of loan programs, rates, and fees, a broker can explore their entire rolodex to find a good home for your loan.
However, this search really depends on who that particular broker is partnered with, or if they take the time to present you with a full range of options.
Not all brokers are approved to work with the same wholesale lenders. For example, some may work with United Wholesale Mortgage (UWM), while others may work with Quicken Loans’ Rocket Pro TPO.
As such, the broker you choose may only be able to quote you mortgage rates from one of these companies.
Along these same lines, one broker may be approved with a dozen different wholesale lenders, while another only two or three.
Chances are the broker with more options at their disposal will be able to find a lower price.
Of course, they may just have a preferred wholesale lender that they send most of their loans to, and you might not get to see all there is to offer.
Ultimately, you want choice when using a broker, otherwise it’s kind of a waste of time, even if they provide exceptional service and are highly competent.
3. Brokers Can Choose Different Compensation Levels
- Brokers get to choose their lender-paid compensation plans with each company they partner with
- Two different brokers can select completely different plans with the same exact lender
- This means one broker could earn double that of another while offering the same loan from the same company
- The result could be a higher or lower mortgage rate depending on which broker you wind up working with
I saved the best for last – brokers get to choose their compensation levels with their wholesale partners.
They might get the choice to earn one, two, or even three points on every home loan they close, along with numbers in between such as 1.75% or 2.50%.
While what they earn is totally their prerogative, it does mean you could partner with a broker that earns double or even triple that of another who works with the same exact lender, and provides the same exact loan.
For example, let’s say you’ve got a $400,000 loan amount and the broker you decide to work with has a compensation plan of 2.50% with Lender A.
This means they’ll earn $11,000 in lender-paid compensation for your loan, which is paid directly by the wholesaler to the broker.
While it doesn’t come out of your pocket directly, higher commission equates to a higher mortgage rate.
Now imagine a different broker who works with that same lender chose a compensation plan of just 1% per loan, in order to snag more business (increased volume, lower margins).
They’d only be paid $4,000 on our hypothetical loan, which means you’ll probably get a lower interest rate as a result.
This is especially important now that mortgage rates are no longer dirt cheap. Gone are the days of 2-3% rates, so putting in the time to find the right price is paramount.
And remember, it’s the same exact loan from the same exact lender. The only difference would be the individual who is handling your loan.
Again, that can matter, as not all brokers are created equal, as mentioned above.
But this does illustrate the importance of comparing mortgage brokers, just as you would banks and direct lenders.
How to Compare Mortgage Brokers
Just like you’d comparison shop retail lenders, whether by phone or online, you can comparison shop mortgage brokers too.
This may entail doing some research online to find local brokers near you, or gathering referrals from friends, family, a real estate agent, etc.
Once you track down a few names, you can reach out directly and share your loan scenario in order to get pricing.
You’ll need to provide details such as the transaction type (purchase or refinance), property type, FICO score, loan amount, and loan-to-value ratio (LTV).
That information can then be incorporated into the broker’s pricing engine to determine what rates they can offer from their various partners.
Instead of speaking to only one broker, and accepting whatever their lowest price is, you can shop your loan with multiple brokers.
In effect, you can supercharge your mortgage rate comparison shopping as they comparison shop on your behalf.
All of a sudden, you’ve got three or more individuals gathering pricing from their many partners on your behalf. That’s pretty tough to beat!
(photo: Tom Shockey)