What are the downsides of using a mortgage broker?

The main cost of working with a mortgage broker is the loan-specific fee you pay for the service, and broker compensation commonly runs 1% to 2% of the loan amount. A broker also does not lend money or decide your approval: the broker finds lenders or loans and passes your file to the lender's underwriting department, which makes the decision.

A mortgage broker's compensation is typically a loan origination fee of about 1% of the mortgage amount, due at closing, and borrowers may roll this fee into the loan at the cost of a higher rate. A broker licensed under the California Financing Law can only broker loans to licensed finance lenders, not to banks, credit unions, or other lender types, which can narrow the loan options available through that broker. Brokers acting under a California real estate license can broker loans to California residents but owe borrowers and investors a fiduciary duty.

A mortgage broker commonly charges an origination fee of 1% to 2% of the loan amount, paid by the borrower, the lender, or both, which adds to the cost of the loan. Some lenders also work exclusively through their own loan officers, so certain loan products may not be available through a broker. Brokers must be licensed and must disclose their fees upfront.