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Is Working With a Mortgage Broker Better for Your Wallet?
There are a lot of things homebuyers have to consider when looking to buy. One of those is deciding how to get financing. For example, when considering working with a mortgage broker versus a nonbank retail lender, you might wonder what the best financial move is for your money. A mortgage broker, per LendingTree, is a third party who connects individuals with lenders, while a nonbank retail lender loans money but isn't affiliated with a bank.
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Read on for more details about choosing a mortgage broker or a nonbank retail lender.
Also see how to negotiate a lower mortgage rate, according to experts.
Casey Gaddy of The Gaddy Group with Keller Williams Empower Philadelphia said to think of nonbank retail lenders like taking a cab: 'They work for one company, offer one set of products and the pricing is usually fixed. You get what you get, and that's it.'
He said to compare that with using a broker, which, in his opinion, is more like using Uber or Lyft. 'You've got options,' he said. 'A mortgage broker shops your loan around to different lenders to try and find you the best deal — kind of like getting multiple drivers competing for your fare. They're not tied to one bank, which means more flexibility in pricing and sometimes better service too.'
A 2024 study by Polygon Research, as reported by the National Mortgage Professional, confirms what brokers have claimed for years — working with a mortgage broker can save you serious money. Borrowers who used a broker saved $10,662, on average, compared with those who worked with nonbank retail lenders. But that's not all.
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It's not just long-term savings. Upfront costs are lower as well. In 2023, broker-assisted loans averaged 115 basis points upfront for a 6.58% mortgage rate, versus 148 basis points and a 6.6% rate for retail lenders, according to the study.
'Brokers usually have lower overhead than the big retail lenders, and in a lot of cases, they pass those savings on to the buyer,' Gaddy said. 'Not always — but you can ask and sometimes even negotiate. So yes, borrowers do often pay less upfront with a mortgage broker.'
VA borrowers can realize big cost reductions by working with a mortgage broker as well. The study revealed an average savings of $13,432 per loan, with an interest rate of 6.26% versus 6.4% through retail lenders.
Gaddy agreed that VA borrowers can benefit even more from working with a mortgage broker — especially if the broker works with VA-focused lenders. However, he recommended confirming that the broker works with VA-focused lenders so you can have access to the most competitive rates and less fees.
Mortgage brokers can help underserved communities gain access. In 2023, brokered lending approval rates were 70% in Majority Minority Census Tracts (MMCTs) compared with 58% for retail lenders. In non-MMCTs, brokers saw 75% approval versus 64% for retail.
Gaddy said that brokers can help level the playing field for everyone. 'Most people don't know loans get sold off on the secondary market anyway,' he said. 'But if you've got a broker fighting to get you the best rate upfront, that's less work for the borrower and more money and equity coming their way over the life of the loan — who doesn't love that?'
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This article originally appeared on Is Working With a Mortgage Broker Better for Your Wallet?
