Mortgage Brokers vs. Mortgage Bankers: What You Need to Know
What is the difference between a mortgage banker and a mortgage broker? Simply put, a mortgage banker is a lender, whereas a mortgage broker represents several lending institutions and serves as a liaison between the lender and borrower. Which is better? The answer is somewhat subjective. Here are some of the benefits of working with each, so you can decide which better meets your needs:
What is a mortgage banker?
Generally, a mortgage banker owns a title company, mortgage brokerage, or banking company and carries a registered broker’s license. Most mortgage bankers have experience in the mortgage banking industry, and most have either been in the business for several years or have a degree in finance and accounting. The vast majority of mortgage bankers understand the financing process of obtaining financing. Furthermore, most mortgage bankers understand the ins and outs of a bank and most, if not all, have significant experience working with banks. Many have expertise in lending and have direct relationships with them, which are invaluable in a short-term lending situation like a refinance or purchase. Related: The State of the Single-Family Residential Mortgage Market What is a mortgage broker?
What is a mortgage broker?
A mortgage broker acts as an intermediary for borrowers looking to get a mortgage from several different lenders. The broker assists the borrower in narrowing down the lenders to which they are qualified, after which they are responsible for negotiating terms and conditions with the lenders. In exchange for this service, the broker charges a commission that is usually variable, with higher commissions charged on larger, complicated loans. A mortgage banker is different. They represent multiple lenders and underwrite loans for the respective lenders. It is rare for a mortgage banker to have all the terms of an individual loan negotiated between himself and the borrower.
Who can benefit from working with each?
So what does each provide? A mortgage banker: Allows borrowers to save money Is a reputable lender Works with a variety of lenders and thus can provide the lowest rates and most flexible mortgage options Highly regulated, both federally and locally A mortgage broker: Flexibility Provides lenders with another outlet to sell their products to borrowers Works with many lenders and thus can offer more competitive interest rates Low cost and non-fee-based Use a blend of debt consolidation and home equity loan options Low risk and less risk for lenders Mortgage brokers: Fewer restrictions and compliance More fees and costs for borrowers How do I find the best mortgage broker for my needs?
When should you use one over the other?
They’re not the same. When it comes to the federal government’s Equal Credit Opportunity Act (ECOA), all lenders must adhere to the same underwriting guidelines. However, lenders may choose to choose from an array of offerings. Whereas, in the case of a mortgage broker, the lender may select from a variety of options, including the likelihood of approval, and the costs associated with different loan terms. “A loan broker can be very helpful in terms of the various loan options available and their total costs and fees,” said Michael Hart, owner, and president of Mortgage Source Mortgage, in Salt Lake City, Utah. Should you work with a mortgage banker or a mortgage broker?
Which is better for you in the long run?
Lenders and brokers have different value propositions. Lenders want to take risks on loans, which means they’ll have a lower credit score, lower credit history, and a high debt ratio. Mortgage brokers on the other hand want to provide maximum value to borrowers, which means they’ll have lower credit scores, higher credit histories, and a lower debt ratio. Each will need to pay close attention to this area to stay competitive. When it comes to mortgages, the number of monthly payments, the expected total cost, and the time it will take to obtain the loan are what’s important. The quicker you can obtain a mortgage, the better for you, and the quicker you can make your payments on the loan. Let the loan broker handle things.