Mortgage Brokers Vs Banks and Everybody Else

Monday Sep 04th, 2017


Welcome to Mortgage Mondays!


We will share up to date mortgage market information and news every Monday.


You need a mortgage loan and in your search you’ve encountered mortgage lenders, banks, credit unions, and mortgage brokers.


Is there a difference? You’re not really sure.


Let’s start by addressing the elephant in the room. I of course would be partial to mortgage brokers because I am one. However, setting aside the obvious. Here’s an explanation of each and how they work in today’s world. If you’ve been turned down for a mortgage you may find working with a broker is the answer to your home buying dreams.


What is the difference between a mortgage broker, mortgage lender, bank or credit union?


A mortgage lender also referred to as a direct lender, bank or credit union is a financial institution that makes loans directly to you. A broker does not lend money, instead he or she works as a matchmaker between you and the lender. A broker finds a lender. As a result a single broker may work with many lenders.


Why work with a mortgage broker.


A broker can issue a mortgage pre-approval, prepare your loan application, handle your financial documents and advise you just like any other lender can.


Brokers work with several lenders and banks and thus have the resources to match you and your unique situation to the lender that is right for you. Here’s some general information about working with a mortgage broker:


  • Brokers have access to more loan programs, best rates, and lower fees.


  • Brokers have more options for people with bad credit.


  • Brokers have more down payment options.


  • Brokers have more options for self employed individuals.


  • Brokers are usually more knowledgeable. As they are familiar with loan products from several lenders.


  • Provide more personable service. You can usually actually talk to your loan officer and get answers.


  • You save time and money from applying with multiple lenders to find one that can help you.


Working with direct mortgage lenders, banks, and credit unions


When working with a direct lender, bank, or credit union - their loan officer will only have access to that company's mortgage programs and rates. In essence, what this means to you is that you may still qualify for a mortgage even if the loan officer tells you that you don’t. Here’s some general information about working with direct lenders, banks, and credit unions:


  • Usually located locally and if your local bank you may already know the loan officer


  • Ability to speak directly with the lender


  • More rigid loan requirements


  • Loan officers are sometimes inexperienced and only versed in their products.


  • Less mortgage options


Will I pay more with a mortgage broker, direct lender, banks or Credit Union?


It depends. Direct lenders, banks, or credit unions may charge an origination fee of 1-3% of the loan amount. Sometimes the lender may have the option of waiving these fees.


Many brokers may also charge the same fee. However, due to mortgage reform the way brokers are paid has changed. The broker now has the option of being paid by the borrower or the lender (not both as was the case in the past). When choosing to be lender paid - the broker can not charge you the upfront origination fees and this in turn lowers your closing cost. This is why many buyers have lower closing cost when working with a broker than working with a direct lender, bank or credit union.


Direct lenders and realtors who are misinformed will often tell you that the broker may send you to the lender who pays the most, but the truth of the matter is since mortgage reform brokers have a set contract amount that the lender will pay and for purposes of continuity that amount is usually the same from lender to lender.  Since the broker receives wholesale rates they can choose to be lender paid, save you in closing cost and still provide you with a competitive rate.


Make sure to always shop around whether using a broker, direct lender, bank or credit union.


© 2017, Tonya Brown. All rights reserved


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