Mortgage Banker Vs. Mortgage Broker: How To Choose
- Mortgage bankers and mortgage brokers can both offer you a loan, but the difference is in who they work for.
- A mortgage broker works with many different lenders, which can help you when looking for different options and lower rates.
- A mortgage banker works for a financial institution that lends to you directly, which can help you close faster.
- Read more stories from Personal Finance Insider.
When you buy a home, you interact with a wide range of industry professionals every step of the way. When it comes to financing, chances are you have the choice of working with a mortgage banker or a mortgage broker. While each ultimately helps you get the same thing (a home loan), there are key differences between them that can affect you and your money.
“Both can help with a home loan and guide people in finding the right mortgage for their needs,” says Stephen Keighery, CEO and Founder of Home Buyer Louisiana. “But you have to know the difference between the two and figure out which services can bring them the most benefit.”
Mortgage Banker vs. Mortgage Broker: In Brief
Mortgage bankers are different from mortgage brokers primarily in terms of where the funding for the loan originates and who makes the actual lending decision.
- A mortgage banker works for a single lending institution — such as a bank, credit union, or mortgage company — that services, sells, or originates residential mortgages offered by that lender.
- A mortgage broker is an agent who, working with several lenders, acts as an intermediary to find or negotiate a residential mortgage loan on behalf of an applicant in exchange for a commission.
What is a Mortgage Banker?
A mortgage banker is an employee who works for and offers loan products from a single lender. This lender guarantees the loan, handles the closing and provides the funds. The process is usually streamlined internally by working with a mortgage banker.
“The mortgage lender is the financial institution, usually a bank, that lends the buyer the money to buy a property, and going through a lender is the most direct route to getting a loan,” says Matt Woods, co -founder and CEO of real estate technology company SOLD.com.
Banks may also offer special rates to pre-existing bank customers. Additionally, the mortgage banker is closely involved in making the actual loan decision.
“In that sense, the mortgage banker is ‘closer’ to the process and has direct visibility into the decision to approve and close the loan,” says Matt Hackett, COO of direct mortgage lender Equity Now.
“One drawback a broker can have is that the valuation a broker gets for a conventional loan is only good for the one lender they submitted the loan to,” Hackett says. “If this lender refuses the loan for any reason, the borrower will have to pay another assessment if they want the broker to submit the loan to another lender.”
Advantages and disadvantages of the mortgage banker
The Role of a Mortgage Banker in Your Home Buying Process
The mortgage banker is one of the first people you will contact when buying a home. You’ll want to get pre-approved for a loan before shopping for real estate so you can narrow your search to only homes you know you can afford.
Once you have found your property and the seller has accepted your offer, you will send the contract to your mortgage banker. You will complete a complete mortgage application with your lender at this point. You will need documents not only about your income and funds, but also about your debts.
You may be asked to provide additional documentation and an appraisal will be ordered by the lender. All issues will need to be resolved before proceeding to final approval.
At closing, your loan will be funded and you will assume ownership of the property. Your lender may be the servicer of your loan, but they also have the option of selling the rights to your loan to another servicer. You will be notified if you have a new servicer after the loan is closed.
What is a Mortgage Broker?
A mortgage broker is an agent who finds or negotiates a residential mortgage loan on behalf of an applicant in exchange for a commission. They work with multiple lenders, which means they have better access to different mortgage products and terms.
This can put mortgage brokers in a much better position to get you the best interest rate and lower fees than if you worked with a mortgage banker.
“Mortgage brokers typically use a powerful loan pricing system to help price your loan with more than 50 lenders at once,” says Andrew S. Weinberg, co-founder of Silver Fin Capital Group. “An experienced mortgage broker can quickly zero in on the best lenders for your scenario.”
Another advantage of using a mortgage broker is that you may not even have to pay a fee for their services, according to Weinberg.
“Most mortgage brokers don’t charge the client for their services,” he says. “Their compensation comes only from the wholesale lender without adding a penny to your closing costs, and only in the event that your loan is closed.”
To be clear, sometimes the borrower pays the mortgage broker. If you work with one, be sure to look carefully at all contracts and the loan estimate provided to you. And don’t forget to ask:
- What fees do I have to pay in cash before closing?
- What fees will be paid from the proceeds of the loan?
- What costs are funded?
Advantages and disadvantages of the mortgage broker
The Role of a Mortgage Broker in Your Home Buying Process
The first part of getting a loan from a mortgage broker is very similar to what you would do with a mortgage banker. You will work with them to get pre-approved, find a property, get an accepted offer, send the contract and complete a complete application.
Where it differs is when the broker submits an application. Since the broker has access to multiple lenders and mortgage products, you will be able to work with your mortgage broker to select a mortgage that best suits your needs.
“Getting structured terms in your favor is the exact type of benefit a mortgage broker offers,” says Bill Gassett, founder of Maximum Real Estate Exposure.
“Let’s say you’ve bought a piece of land and want to build your own custom house,” he says. “Some borrowers may go to their local Bank of America or Wells Fargo for a construction loan. Getting a mortgage this way is almost always a mistake. Nothing against BOA or Wells Fargo. They are good lending institutions They just might not offer the best mortgage when you want to build a house.”
As with a mortgage banker, you will need to keep your documents up to date throughout the process, and an appraisal will be ordered for the lender.
Another major difference between a Mortgage Banker and a Mortgage Broker is that your Mortgage Broker will never service your loan, unlike a Mortgage Banker. After closing, you won’t need to contact your mortgage broker again until you need a new mortgage.
When it comes to your money and whether it would be best to work with a mortgage banker or mortgage broker, one thing is certain: make sure you’re comparing apples to apples when reviewing the terms of your loan. This means that you will need a loan estimate from each. This standardized document lists the annual percentage range (APR), fees, and actual loan costs. By comparing loans side-by-side, you can find the one that’s truly best for you and your situation.