The majority of homebuyers get their loans through a mortgage broker—a professional who’s in the business of compiling and filtering through the options for you. A mortgage broker acts as your agent to “shop lenders” for the best possible loan terms, given your financial situation and goals. Many states require mortgage brokerages to be licensed, and individual mortgage brokers are sometimes certified by the National Association of Mortgage Brokers (NAMB).
A good broker will help you find the best mortgage by:
• talking with you about your financial situation and goals,
• finding and explaining financing options available to you,
• working with you to get preapproved for a mortgage (after you decide which loan you want), and
• helping you complete your loan application, confirmation of employment and wages, financial information, credit report, and other documentation the lender needs.
Once approved, a mortgage broker will review the loan documents before you sign them, coordinate the property appraisal, and act as a liaison between you and the lender up through the closing day.
As for compensation, mortgage brokers make most of their money by marking up the costs on the loan the wholesale lender is offering. This may get passed on to you in the form of points (one point is 1% of the loan value), processing fees, or a higher interest rate on the mortgage you’re getting. Although the broker’s commission ultimately comes out of your pocket, a savvy borrower can negotiate down a fee that seems excessively high. Of course, a good mortgage broker should be able to save you the equivalent of his or her earnings and then some, by finding you a more affordable mortgage than you could locate on your own.
Start by getting recommendations from your real estate agent, friends, coworkers, and other homeowners. Look for someone who is skilled (and patient) at explaining complicated financing concepts, and is experienced working with buyers like you. Check out the mortgage brokers’ websites and any online reviews, such as Yelp or Zillow.
Next, interview two or three prospective mortgage brokers. Ask about their experience and certifications, how many residential mortgages they’ve brokered in the past, plus any issues special to your situation (like whether the broker can provide help getting an FHA or other government-backed loan). Also ask for the names of three references, and follow up to check whether these folks were satisfied with the loan they got and their working relationship with the broker.
Instead of working with a mortgage broker, some homebuyers go directly to a bank, credit union, or other commercial lender, such as a local bank branch. If you decide to work with a lender, you’ll probably still be dealing primarily with a person within the institution called a “mortgage banker” or “loan officer.” This person performs the same duties (more or less) as a mortgage broker, except that instead of searching the entire loan market, the loan officer will identify which of the bank’s own portfolio of loan products suits your needs.
The loan officer should help you fill out your application and handle necessary paperwork like obtaining your credit report and getting an appraisal. However, once you’ve chosen a bank, you won’t be able to choose your loan officer as you would a broker—or your available choices will be limited.
How much personal contact you have with a specific loan officer depends on the lender. Lenders range widely, from the gigantic bank to the local credit union. Some operate almost entirely online, even having you apply online. If you work with online lenders, you’ll have to rely more heavily on emails and faxes to transmit documents, rather than in-person meetings.
For advice on alternative loan options, such as borrowing money from family, see the Nolo article Borrowing from Family or Friends to Buy a House and "What kinds of government loans are available to homebuyers?"
For more on finding and choosing the best mortgage, see the book Nolo's Essential Guide to Buying Your First Home, by Ilona Bray, Alayna Schroeder, and Marcia Stewart.