If you have searched for a mortgage company, you will notice there are banks and large mortgage companies; then, there are mortgage brokers.
Is there much of a difference?
What are the pros and cons of using mortgage brokers vs. banks?
In this article, we will detail the differences between Banks and Mortgage Brokers and the advantages and disadvantages of each to help you decide which option is right for you.
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What is a mortgage broker?
A mortgage broker acts as a middle man between the homeowner and the mortgage lender. A broker can prepare your loan application, financial documents and issue mortgage pre-approvals just like any lender can.
A mortgage broker works with several mortgage lenders and banks and submits your loan file to them to issue the loan. Brokers get paid commissions from lenders for completing your mortgage application and documents.
How do Banks and Direct Lenders work?
A Bank or direct mortgage lender is the company that is funding the loan. You will work with a loan officer that is an employee of the Bank. Often, Banks are licensed in most, if not all, 50 states.
The loan officer only has access to the home loan programs that the lender offers. Since you are working directly with the lending company instead of a broker, you can usually save cash on fees.
Who can give me a Better Deal, A Mortgage Company or a Mortgage Broker?
When choosing whether to work with a mortgage broker or a Bank/ Lender, there are some things to consider. While using a mortgage broker seems like it would save you money because they can access many lenders and programs.
That isn’t always the case.
The mortgage company pays brokers commissions; some lenders pay more than others. This creates a conflict of interest in some cases.
One lender may offer the best deal but pays a small commission. Another loan company may be the best, more expensive for the borrower but pays a much higher commission.
Which lender do you think they will choose?
When working with a Bank, that loan officer can only access their mortgage programs and mortgage rates. You could be getting a better deal with another Bank.
Just make sure you always shop around whether you’re using a mortgage broker or Bank. You should always speak to at least one other broker or lender to compare the loan offers. This way, you can ensure you are getting the best deal on your home loan.
This is how you save money on a mortgage.
Shopping for a Mortgage
When shopping for a mortgage loan, it’s a good idea to speak to both brokers and direct lenders because mortgage brokers have access to hundreds of different lenders and types of loan programs.
They can shop interest rates for you and help you compare different terms such as fixed-rate mortgage vs. adjustable-rate mortgages, 30 year and 15-year terms, and advise you on other things to tailor a loan that’s perfect for you.
If you have imperfect credit, then using a broker over a direct lender will be advantageous because there are more programs you may qualify for.
Looking at the Advantages and Disadvantages of each
Pros of Working with Mortgage Brokers:
There are several advantages to using an independent mortgage broker over a bank or mortgage banker. Brokers have several lenders they can submit your loan application to. This makes them an attractive option, especially for borrowers with difficult loans such as low credit scores or income issues.
In these cases, the broker has several different lenders that may have lower requirements or programs. This will save you time and money from applying with multiple lenders to find one that can help you.
- Access to multiple lenders to find the best rates and lowest fees.
- Have more options for people with bad credit
- Are usually more knowledge
- Have access to more loan programs
- Most brokers have small companies making it easy to get a hold of than loan officers.
- If the mortgage broker is near you, you can have face to face meetings.
Cons of Working with Mortgage Brokers:
There are also some drawbacks to using a mortgage broker instead of a direct lender. In some cases, the broker may charge higher origination fees. Since they are not the actual lender, sometimes, it takes longer to process your loan with a broker.
Many independent mortgage brokers don’t have an in-house underwriter with direct communication, so they have to send your loan application to the lender’s underwriter. This causes more overlays that can delay closing.
- Sometimes charge higher fees.
- May not get you the best deal (have a preference for a lender that pays higher commissions)
- Closing delays
Pros of working with Banks and direct lenders:
By working with the actual lender instead of having a middleman. You can avoid some of the fees you would have to pay a mortgage broker. The loan officer gets paid a commission for closing the loan.
On the other hand, mortgage brokers may not be interested in finding you the best deal, choosing to work with a particular mortgage lender because they pay a higher commission.
- Save on fees that a broker would charge.
- Commission pay does not create a conflict of interest.
- If using a Local Bank, you may already know the banker processing your loan.
- Ability to speak directly to the lender without a go-between
- Loans may have fewer overlays because the process is all internal.
Cons of working with Banks and direct lenders:
Working with the lender isn’t without its disadvantages. Most Banks have more rigid loan programs that have higher requirements.
If you have a low credit score, many local banks and lenders may not help you without a 620 credit score. Because the loan agent doesn’t have multiple companies to compare, you can’t be sure you are getting the best interest rate on your home loan.
- Less flexible requirements
- May not get the lowest rates
- Loan officers are sometimes inexperienced
- Fewer mortgage options