October 11 2010 (Jeff Alan)
Since very few people pay cash for a home, one of the most important steps in your purchase is finding a lender for your mortgage loan. The question is, should you deal directly with a lender or should you use a mortgage broker? There’s actually a big difference between the two with each having positive and negative aspects to what they provide.
Let’s take a look at the many differences between Banks and Mortgage Brokers:
Whether you choose a bank, credit union, or other lending institution, your primary contact will be you loan officer. The loan officer takes your application and works to find a home loan that suits your needs. If your personal credit is approved, the officer moves forward to process the purchase.
Banks often have a wide variety of loans types to draw from, but all loans originate from one lending institution.
Mortgage brokers are professionals who generally work for non-lending institutions or mortgage loan brokerages that are paid a fee for bringing together lenders and perspective borrowers. They usually work with dozens or even hundreds of lenders, not as employees, but as freelance agents.
Mortgage brokers find and evaluate home buyers, analyzing each person’s credit situation to determine which lender is the best fit for that person’s needs. The broker submits the home buyer’s application to one or more lenders in order to sell it, and works with the chosen lender until the loan closes. A good mortgage broker can find a lender for just about any type of credit.
Mortgage brokers earn a fee for every transaction they complete and close. Many of the mortgages companies that advertise online are mortgage brokers.
Differences Between Mortgage Brokers and Banks:
One of the great things about brokers is they have vast resources to use when shopping for a loan. Every lender has different programs and depending on what you are looking for, especially if there could be credit problems or a unique property, they may be able to secure a loan for you that a bank may refuse.
Don’t be too anxious to disclose to a broker the interest rate you are willing to accept–let them tell you what terms they can secure. A broker may not always have your best interest in mind and may try to steer you towards a loan that benefits them with a higher fee but could be more costly to you overall.
A local or online mortgage broker may find you a lender in another part of the country, and they usually won’t have a local branch. So if having the ability to go down to your lender to ask some one on one questions, a local bank or lender might be better for you.
Some out of town lenders don’t understand the types of heating systems used in specific areas, or they aren’t familiar with private septic systems, and they don’t immediately understand common classifications and terms used by local appraisers. Those are just a few examples of problems that can cause slow-downs in loans made by an out of town lender working with a mortgage broker.
Using a local bank can sometimes be a plus. Their staff generally understands the specifics of local properties, but a distant lender who doesn’t will delay closing until questions are answered.
Shop around to make sure the terms are reasonable. Whether you use a bank or mortgage broker, don’t be afraid to ask for referrals or inquire with other banks or brokers. Brokers will shop for a lender for you, but don’t be afraid to shop around for different brokers. In order to shop your local banks, you’re going to have to do all of the calling and foot work yourself.
Banks generally do not have the variety of programs or loans that a mortgage broker might be able to find. But if you’re just looking for a basic conforming fixed rate loan…you can get that from almost anybody.
Get Your Credit Score Before Starting:
It might be wise to get a copy of your credit report before shopping for a bank or a mortgage broker. While interviewing your banker or broker, having a personal copy should provide enough details for them to give you an opinion of the types of loans they can offer you.
Once you decide on whether you wish to use a banker or broker, they will then access your credit files, but taking your personal copies to the initial interview avoids multiple credit pulls that can lower your scores. Requesting your own credit reports does not affect your scores.