How Do I Decide Which Mortgage Broker to Use?

Pick the broker whose written Loan Estimate, the standard form that shows a loan's rate and closing costs, comes out cheapest for the same loan over the years you expect to keep it. Before you choose, confirm on NMLS Consumer Access that the company and your loan officer are licensed in your state, ask how many wholesale lenders (lenders that take loans from brokers) they use for your loan type, and get their pay in writing. The Consumer Financial Protection Bureau (CFPB) recommends getting at least three written offers, and one of them can come from a bank, credit union, or other lender you contact directly.

Where to find broker candidates

Start with two or three brokers. A mortgage broker places your loan with one of the lenders it works with, and the CFPB's home loan toolkit warns that a loan officer is not necessarily shopping on your behalf or offering the lowest-cost loan. Adding a lender you contact yourself gives you a check on the brokers' quotes.

Ask your real estate agent and people who bought recently for names. Two federal rules under the Real Estate Settlement Procedures Act (RESPA) apply to an agent's referral:

• A broker may not pay your agent, and the agent may not accept, a fee or anything else of value for referring you.
• If the agent's company has an ownership or financial interest in the brokerage, the agent must give you a written disclosure of that relationship and the broker's estimated charges no later than the time of the referral, and you are not required to use that broker.

How to check a broker's license and record

Under the SAFE Mortgage Licensing Act, a loan officer must hold a state license, or a federal registration if employed by a bank or credit union, kept current each year, along with a unique identifier from the Nationwide Multistate Licensing System (NMLS). Federal rules also require the broker company's and your loan officer's names and NMLS IDs on your loan application, your Loan Estimate, your Closing Disclosure (the final statement of loan terms and costs), the note (your promise to repay), and the mortgage. Use those numbers, or the names, to check each candidate:

1. Go to nmlsconsumeraccess.org, which the Conference of State Bank Supervisors describes as a free service for confirming that a company or professional is authorized to do business in your state.
2. Search for the company, agree to the terms of use, enter the security code, and open its record. Repeat for the loan officer.
3. Confirm that each record shows authorization in the state where the home is.
4. Scroll to the Regulatory Actions section and open the documents linked to any action listed, following the steps in the CFPB's NMLS help document.

Drop any candidate whose company or loan officer is not authorized in your state. If a record lists a regulatory action, read the linked documents and ask the broker about it before you apply.

Questions to ask before you apply

Ask each candidate the same questions, and ask for the answers about pay and fees in writing:

1. "How many wholesale lenders do you send loans to, and how many of them make the loan type I want?" The answer shows how much shopping the broker can do for you. Federal rules bar a broker from steering you into a loan because it pays the broker more, unless that loan is in your interest; how brokers find and select loans covers the options a broker can show you to meet that rule.
2. "Will the lender or I pay you, and how much?" On a home purchase or refinance loan, either the lender or you pays the broker, never both, and the broker's pay cannot be based on your interest rate or other loan terms. Who pays the mortgage broker shows where each kind of pay appears on your forms.
3. "What will you charge before I get a Loan Estimate?" The only fee anyone may charge before you receive a Loan Estimate and say you want to go ahead is a reasonable fee for your credit report. An application, appraisal, or processing fee has to wait.
4. "Can you offer FHA, VA, or USDA loans, and through which lenders?" Those loans from the Federal Housing Administration, Department of Veterans Affairs, and U.S. Department of Agriculture reach a broker only through lenders each program approves (which government-backed loans a broker can offer).
5. "How long will you lock my rate, and what does an extension cost?" The toolkit says locks typically run 30, 45, or 60 days, that policies vary by lender, and that an extension can be expensive if closing takes longer.
6. "Who will handle my file from application to closing, and how fast do you reply?" Get that person's name, phone number, and email.

Before the first meeting, gather the documents in how to prepare before meeting with a mortgage broker.

How to compare the brokers' offers

Give every candidate the same loan amount, down payment, loan type, and term, and request the Loan Estimates on the same day, since the toolkit notes that mortgage rates change daily and sometimes hourly. Each broker or its lender must deliver or mail the Loan Estimate within three business days after receiving your application.

Read these parts of each Loan Estimate side by side:

• Page 1: the interest rate and whether it is locked.
• Page 2, Sections A and B: the origination charges (what the lender and broker charge to make the loan) and the services you cannot shop for. The toolkit says to concentrate on these, because you can shop for the Section C services no matter which lender you choose. Section J shows any lender credits, which lower your upfront costs.
• Page 3: the annual percentage rate (APR), your costs over the loan term stated as a yearly rate, and the five-year cost comparison. The toolkit points out that a loan with a low APR can still have high upfront costs.

When one offer has the lower rate and another has the lower upfront charges, how to choose the best lender for your mortgage shows how to work out how long you would need to keep the loan for the lower rate to make up for the higher upfront charges.