Real Estate Agent vs. Mortgage Broker 101 for Home Buyers
If you’re about to start the process of buying a home—whether it’s your first or your fifth—you probably have a few questions. For example:
- How much house can I afford?
- Am I in a buyer’s market or a seller’s market?
- How much money do I need for a down payment?
- What types of loans am I eligible for?
- How many homes should I view before choosing one?
- Should I work with a real estate agent or a mortgage broker?
This list goes on and on, but you get the idea. In this blog post, we’ll zero in on that last question — whether to work with a real estate agent or a mortgage broker — and explain why it isn’t an either/or proposition.
The Difference Between Mortgage Brokers and Real Estate Agents
Who are Real Estate Agents?
A real estate agent is a licensed professional responsible for representing either a buyer or a seller in a real estate transaction. As simple as that definition might sound, it doesn’t fully encompass the amount of work that goes into being a real estate agent.
From a buyer’s perspective, your real estate agent will work closely with you to determine what you’re looking for in a property, which neighborhoods you’d like to view properties in and what your budget is.
From there, your agent will look for available properties within your price range, schedule viewing appointments, educate you on market conditions and help you evaluate each listing. Should you require additional financing, your agent can also help you identify different financing options. Once you’ve selected a property and are ready to make an offer, your agent will represent your interests during purchase negotiations and provide additional, ongoing support.
Real estate agents make a nominal salary that they receive from their real estate brokerage but earn the majority of their pay on commission (that they share with their broker). They also form real estate teams to achieve certain goals of their brokerage more efficiently.
Real estate agents who are members of the National Association of Realtors (NAR) and subscribe to the NAR’s Code of Ethics earn the official distinction of Realtor.
Realtors are required to enroll in ongoing training in order to maintain their membership and enjoy benefits such as marketing resources and support, attendance at annual state and national conventions, access to educational materials and political advocacy.
Who Are Mortgage Brokers and Mortgage Agents?
A mortgage broker, as well as a mortgage agent, is a licensed financial professional who acts as an intermediary between a borrower and a lender. The difference between a mortgage broker and mortgage agent is that a mortgage broker can work as an independent professional, while mortgage agents work for mortgage brokers serving homebuyers on their broker’s behalf.
Similarly to a real estate agent, a mortgage broker is responsible for representing their client’s—in this case a home buyer’s—interests. A mortgage broker will research interest rates and loan terms, as well as compare lenders and available loan types, to help you get the best rate for your particular situation. Your broker will also educate you about the nuances of various loan products, such as the difference between a fixed rate mortgage and a standard mortgage.
From there, your broker will help you gather relevant financial documentation, such as your tri-merge credit report, proof of income and proof of assets, to present to lenders for prequalification. Once you’ve identified a loan, lender and property, your broker will coordinate with the lender, the closing agent and other relevant parties to secure financing and finalize the purchase of your new property.
Mortgage brokers are not to be confused with loan officers who perform a similar function but are affiliated with a specific lender (often a bank or credit union). As mentioned above, mortgage brokers are free professionals and are able to work with any lender.
Mortgage agents typically earn a salary from their mortgage broker, though some earn additional compensation in the form of lender commission or a loan origination fee, depending on which brokerage you work with.
So, to review: a real estate agent can help you find your new home, and a mortgage broker can help you finance it.
Can a Real Estate Agent also Be a Mortgage Broker?
Yes, they can. But although it is possible to partner with an agent who has both their real estate and mortgage broker’s licenses, dual licensing is frowned upon in the industry because it presents a conflict of interests and is heavily regulated as a result.
Conflict of Interests
The responsibilities of a real estate agent include negotiating with mortgage lenders to get you the best deal. But if your real estate agent is also a mortgage broker, they are interested in getting a higher commission from the lender, which means a more expensive loan for you.
The general rule of thumb is that two heads are better than one. It’s better to surround yourself with a team of professionals, including a real estate agent, a mortgage broker, a CPA, an estate planner and so on. A good real estate agent will have a solid referral for a mortgage broker, and vice versa.
Should I Use a Mortgage Lender Recommended by My Real Estate Agent?
There are two sides to using your realtor’s preferred lender.
On one hand, the process should be quicker because of a better communication between your real estate agent and their preferred mortgage lender. Your agent might have actually chosen this particular lender because they are reliable and always have a variety of good options that suit the category of clients they work with and you find yourself in.
On the other hand, already having you as a client may make them feel like they can easily sign you up for a more expensive loan that will be more beneficial for them than for you.
As the professionals from the leading mortgage company in five American states, Blue Water Mortgage Corporation, advise in their Complete Guide to Buying Your First Home,
“a good way to shop around for financing is to engage at least three different types of lenders — big banks, regional banks, local lenders, credit unions or mortgage brokers.”
Review all mortgage offers thoroughly, talk to a few other lenders and check mortgage rates and terms in a few banks. Decide if you should go with your realtor’s preferred lender based on the numbers you will get as a result of your comparison.
Should a Home Buyer Contact a Mortgage Broker or Real Estate Agent First?
Real estate agents and mortgage brokers play different—but equally vital—roles in the home buying process. Common sense dictates that you should find your real estate agent before you start looking for a mortgage broker, for a couple of reasons.
The first and foremost is that your real estate agent will be involved in every single stage of the home buying process. Your broker will, of course, be heavily involved, but it isn’t their job to help you find your dream home—they’re there to help you figure out how to afford it.
The second is that an established agent will likely have a network of industry contacts they can use to offer professional recommendations. By asking your agent for a referral, you’re more likely to find a broker with a proven track record of closing loans.
Buying a home is an exciting, albeit somewhat challenging, process—one made easier with the support of qualified professionals. Real estate agents and mortgage brokers have the specialized expertise to guide you through every step of the process and to make finding and financing the home of your dreams that much easier.
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About the Author
Roger Odoardi is a co-founder, partner and licensed mortgage broker at Blue Water Mortgage Corporation, an independent mortgage broker serving Massachusetts, New Hampshire, Maine, Connecticut and Florida with 20-plus years of experience in the financial services industry.