Mortgage brokers and banks operate differently in the delicate ecosystem of mortgage buying. You obviously want to get the best deal and the best experience overall. But which one fits you? Let us point the way.
Get out your notepad. We’re going to talk about what a mortgage broker is versus a bank in terms of your getting a home loan.
Mortgage Broker
A mortgage broker works for themselves. They are the go-between for a myriad of different lenders and banks to service you (the borrower). They are paid commission from lenders and/or banks to get mortgage buyers that are more likely to pay back their loan.
Mortgage brokers have hundreds of contacts to lenders. They are looking for people who need loans and setting them up with with lenders who fit their situations well. They can also facilitate a loan for you from the banks as well.
Their expertise is used to ask the right questions, figuring out the lowest rate you could be approved for, sending in your application and discussing whether an adjustable or fixed interest rate is going to be the best fit.
Some people have said that their mortgage broker was able to get them a better interest rate with the banks than if they had tried to ask the banks themselves. People have also said that a broker was able to get their interest rate approved even when their credit status wasn’t very favorable.
Banks
Going with a bank lender, aka loan officer, cuts out the middle man. Like a mortgage broker, they will ask you questions to figure out what your interest rate should be, and what your mortgage plan should look like. They can work with you to get the best interest rate and package over all. Never pay the advertised rate, they should always be offering you lower than that rate. They are paid by the bank via commission, salary, or a combination of both.
Now to the pros and cons list!
Mortgage Broker Pros:
- You can schedule them on your own time.
- They can possibly get you a lower interest rate than you could on your own.
- They can get you approved for more.
- They can help you get a lender even if your credit isn’t stellar.
- They sometimes will pay for inspections, appraisals and other miscellaneous fees out on their own dime. They will get less of their commission but they may get more business if you tell your friends you had a good experience and there is a higher possibility of return business.
Mortgage Broker Cons:
- The lenders with the best rates can be on the other side of the country.
- The lenders with the best rates are usually small and have unrecognizable names.
- Mortgage brokers may not have your best interests in mind. They might try to stick you with a rate you can’t handle just to get a higher commission.
- You might not be able to meet the broker face to face which can be uncomfortable and make you uneasy.
- They can approve you when your FICO® Score is bad, but you might not really be in a position to handle the mortgage rate.
- Since they are free agents, there is no higher power that they are accountable to if you are not satisfied.
Bank Loan Officer Pros:
- You can meet with them anytime you need. They usually have special evening and weekend staff.
- You can get bank perks with your loan. Free banking or a free safety deposit box are some of the extras offered with a bank mortgage.
- They usually pay the appraisal fee themselves.
- You have face to face interaction which alleviates the fear of your money flying out the window.
- They aren’t likely to skip town.
- You can create home equity lines of credit.
- You know exactly who to call and how to talk to them. If you have questions or need forms changed you can contact them easily.
- They can offer lower closing costs because they will pay a share of the costs.
Bank Loan Officer Cons:
- You have to negotiate hard for a good deal or you will be stuck with a bad interest rate that you could have argued down.
- You have to do all the bank comparisons yourself which takes time and research.
- Their rates aren’t always as good as what mortgage brokers can offer.
- They are more likely to turn their nose up at a bad FICO® Score.
- They might require supervisor approval for requests.
So it’s not a clear winner but that’s all the sides of it for you to make an informed choice. It would be smart to check out a mortgage broker and multiple banks, including different branches of the banks. Negotiating with banks can be really frustrating. Trying to get a loan officer to offer a lower rate can be difficult to do. If you’re getting bad vibes from a loan officer, check out another loan officer or a different bank. If someone isn’t budging on a rate, don’t be afraid to negotiate a rate with a different officer. This is as much a people game as it is a numbers game. The bank’s financial advisors can get on the action because they want some of the commission too.
If your credit history is clean as a whistle, shop around to different banks to see what price you can get. If your credit history is NOT clean as a whistle consider getting a mortgage broker. If you don’t like negotiating or you don’t have a lot of time to commit to the process, a mortgage broker is the way to go.
This is likely the biggest financial decision you will make in your life. Tread wisely and do your best.
Featured Image: Thinkstock/DavidSacks