Mortgage Brokers vs. Banks
The Advantages and Disadvantages of Banks and Brokers.
When it comes to buying a home one of the most important decision you’ll be faced with is who to approach for a loan. For first time homebuyers especially, this can be a confusing and stressful decision. I know when I first decided to purchase my house I just assumed I would go to my bank and ask them for a mortgage. However when a friend of mine, who had just got a killer deal on a beautiful home, challenged me with, “you’re going to the bank! Are you insane?” I had second thoughts.
That’s when I found out about mortgage brokers. The gentleman that I ended up choosing was patient with my never-ending questions, and even my last minute panic attack before I signed all of the paperwork. He was undoubtedly the best choice for me. However when friends and family members ask for my advice when it comes to mortgage brokers vs. banker, I’ll tell them what I tell you – it doesn’t matter!
However what matters is deciding on a financial lender who will answer all of your questions and help you feel comfortable about a huge financial decision. Plus, you’ll want to trust that whoever you go with will get you the best mortgage available.
So it’s not so much mortgage broker vs. banker, but who will get you the best mortgage in my opinion, but I can’t deny that bankers and brokers will provide very different means to the same end – getting you that coveted mortgage that you so desire. The means, or rather the way each provides the service is very well a matter of personal opinion. For instance, many individuals like the idea that a mortgage broker will shop around various lenders for the best mortgage deal. However, if you have a long-standing relationship with your bank, you might be more comfortable putting your mortgage options in the hands of a familiar face.
So I’m going to lay out all of the essential information for you here…
Mortgage Brokers:
A mortgage broker is a mediator that acts as the mediator when it comes to acquiring mortgages for individuals for personal home ownership, and for businesses. Mortgage brokers make their money from the lender when they originate (get them clients) a mortgage for them. Brokers make their money through the origination and the processing of loan documentation (closing costs).
The great thing about mortgage brokers, and the fact why I chose one personally, was based on the idea that they have access to numerous lenders – all vying for your business. Brokers are the more common choice. Approximately 65 % of home loans get their mortgages through brokers. If you don’t have a personal relationship with your financial institution, a lender will provide various mortgage options for you through a variety of different lenders. Also, you might not want to get your mortgage through a bank if you have a bad credit record. Banks can be very harsh and stringent when it comes to turning you away if you have less than stellar credit. However mortgage brokers have relationships with numerous lenders, so chances are, even if your credit is really bad, they can still find you find a mortgage.
One thing that you have to be conscious of with a mortgage broker is that most charge a fee. Some will charge this fee to the borrower (you) for their services, while others will charge a fee only to the lender for getting them your business. Before you sign any type of paper work with a mortgage broker, ask them about their fees. Most mortgage brokers make enough from the sale and commission from your loan (from the lender) that they won’t charge you a fee at all. However mortgage brokers do tend to charge more in closing costs (this is for processing all of the documentation for the loan).
Bankers
The main difference with getting your mortgage through a bank, as opposed to a mortgage broker, is that banks are required to abide by standardized fees, meaning that every employee at a specific bank charges the same fees. The bank employee is actually lending the borrower money from the financial institution he or she works for – not so with a broker. The banker must therefore decide on behalf of the bank if he or she should underwrite the loan, and at what rate and terms. A broker, on the other hand, doesn't lend the borrower money from his or her company. Instead, a broker plays the middleman or woman between borrower and lender. A broker doesn’t decide the terms of the loan; he or she just provides various options to the borrower from the various institutions and does the paperwork.
Many people prefer the stability of bank mortgage fees – as opposed to the instability of mortgage broker fees (some charge the borrower, some don’t, and the fees differ among every broker). If you have a long-standing relationship with your bank you might trust them more, and prefer knowing exactly what your fees for the home loan will be.
Regardless of which you go with, banker or mortgage broker, it’s important that you are getting the best mortgage available to you. It’s also important, especially as a first time borrower, that broker or banker provides the comfort and advice you need during your entire loan process. The last thing you want is a banker that rushes you out of his office before he’s answered any of your questions, or a broker who charges you outrageous fees.
Broker or banker is really a personal opinion. Many brokers argue that they have far more lenders available for you to choose from; however bankers would argue otherwise. Basically both provide the same services:
- They both describe the different loan types that are available to you.
- They assess your financial situation and help you choose the best mortgage.
- They both help you fill out your application and supporting paperwork.
- They both keep you updated of the loan process, and provide support up until closing day.
- Brokers own or work for small businesses – so you’re usually promised more attention.
- Brokers often have access to numerous loan programs because they have relationships with multiple lenders.
- Most brokers get their clients based on referrals, so if you’re referred to a broker – chances are they have pleased other clients.
- Brokers work for themselves, so if they mess up there’s no boss to report them to.
- There is no regulation to broker’s fees – some charge the borrower, some don’t.
- With loan officers at banks there is a chain of command. So if they mess up you can notify their superior.
- With a bank you get standardized fees – so you know what they are before closing.
- Loan officers for banks work for large corporations, so you may be just a number to your bank. However if your credit is good or you have a personal relationship with a bank loan officer this will make a difference.
- Bankers often have less access to multiple lenders.
My advice, go with referrals and reputation. Regardless of if you end up with a banker or broker, reputation is everything. If you are still unsure, shop around both bankers and brokers to get a taste for what each provides and decide from there. Ask them about fees and mortgages available to you. Just don’t sign anything until you’re sure you’re getting the best mortgage.
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