1. What are you going to do for me? A mortgage broker is like a middleman between you and, typically, about twenty-five different lenders. He or she can help you shop from a variety of lenders with a single phone call. The broker will then act as your representative through closing.
Red Flag! A broker shouldn't be pushing you towards a particular mortgage program--if he is, chances are his commission on this plan is heads above the rest. Steer clear.
2. How much will this deal cost? Fees vary regionally, but the final tally is generally 3 to 5 percent of the loan amount, including the loan origination fee, closing costs, and other administrative fees. Be sure to ask for a good-faith estimate up front.
Red Flag! Do not work with a mortgage broker who will not give you a good-faith estimate upon your first meeting or one who tries to avoid the question by saying: "We won't know for sure until the deal is done."
3. How do you make your money? It's simple. The higher the rate a mortgage broker can get you to pay over the rate the wholesale lender is charging him, the more money he puts in his pocket. One way to keep a broker competitive is to play him or her against another broker. That's what Paul, a Connecticut CPA. did. In September 1998, he told two mortgage brokers they were going head-to-head to refinance his 7.5 percent $160,000 loan. In the end, he got locked in at 6.25 percent with one point, saving a half point, worth $800, from his broker's original quote.
4. How much business do you do? Brokers buy loans from banks at wholesale and pass them on to you at retail. The price they pay depends somewhat on the volume they do and the quality of the loan packages they present. You're generally better off with a large operator who runs a professional-looking shop instead of a sole practitioner.
Red Flag! Be careful of any broker who promises you too much too soon. A promise to secure your loan within thirty days is to be believed. A promise of a turnaround in less than a week may very well be broken.
5. Can you guarantee me the best possible deal? Not necessarily. A mortgage broker should be one of the venues you shop when you're looking for the best rate on a loan, just as you should also check out the large banks and the credit unions in town. Note: If you have credit problems--few late payments on your credit report or a bankruptcy in the not so distant past--a mortgage broker's array of sources will usually work to your advantage