Where is the best place to get a home loan? Should you just use your bank down the street or should you work directly with a mortgage company? And if you decide to work with a mortgage company, should you work with a mortgage banker or a mortgage broker? Did you know there’s a difference between direct mortgage lenders, brokers and bankers?
Mortgage Banker vs Mortgage Broker: What Are They?
Mortgage brokers are typically smaller operations that have marketing agreements set up with mortgage bankers. Mortgage brokers do not use their own funds during the mortgage process. A mortgage broker’s operation is to accept loan applications from clients and then forward the application to a mortgage banker.
In exchange for marketing a particular lender’s mortgage programs, the broker receives a slightly lower rate from the banker. In turn, the broker then “marks up” the interest rate to compete with the retail mortgage market.
Because brokers have access to multiple mortgage companies, they can also have more access to different types of loans. For example, one lender may cater to those with less than perfect credit, while another touts its expertise in the government-backed home loan market, and a broker will have access to both. However, the mortgage brokers’ utility has eroded over the years since there are simply fewer loan options available in today’s marketplace compared to 10 or 20 years ago. Today, most mortgage companies offer very similar home loan programs.
What Does a Broker Do?
Mortgage brokers can accept a loan application and quote rates and fees to the applicant, but until the broker makes the final decision which mortgage company will receive the application, rates and fees can change. Mortgage brokers lose control over the process once the file is delivered to the actual mortgage company making the loan. When the mortgage company accepts the loan file and begins processing the application, the mortgage lender takes over while the mortgage broker finds the next deal. Mortgage brokers cannot issue loan approvals.
A mortgage banker on the the other hand does originate, process and approve loan applications using its own funds. These funds are drawn from a line of credit issued to the mortgage banker. The line of credit is then replenished when the loan is sold. A mortgage banker follows established lending guidelines, but it can also make its own determinations during the approval process. These are determined by rules that must be followed at all times, and guidelines which the banker adheres to, but may sometimes bend. An example of a rule is a requirement for borrowers to live in a property as their primary residence to obtain a certain loan rate. A guideline example might be determining whether borrowers can afford the monthly payments.
Advantages of a Mortgage Banker vs. a Mortgage Broker
Mortgage bankers can offer more competitive mortgage rates and terms, and can make exceptions where necessary. For instance, an applicant’s debt ratio is 43 but the mortgage guideline says 42 is the target. A banker can make this exception based upon other characteristics of a loan file, while a mortgage broker cannot.
The mortgage banker documents the loan file, orders third party services and draws loan papers for the borrowers to sign. This beginning-to-end process means the banker is in complete control of the loan file and is more efficient in handling the loan should any issues arise during the process.
Should I Choose a Mortgage Banker or a Mortgage Broker?
So which is better, the broker or the banker? The mortgage broker might have been a competitive choice 10 to 20 years ago, but today mortgage programs are more commoditized, putting the broker at a disadvantage. The control as well as competitive pricing gives the nod to the banker in the mortgage banker vs mortgage broker battle.
A mortgage banker can give you the most competitive mortgage interest rates, and you can also improve those rates yourself. With better credit you can get better rates, and you can start improving your credit now.