Buying a Home? Mortgage Broker vs. Bank Explained
Monday, 22 February 2021

You want to finance your dream home this year and have explored many mortgage options, but you are confused about the difference between the mortgage broker or bank (direct lender).

Mortgage brokers are the middleman that connects you with lenders. They help the borrower by linking them with the best lender and providing the deal that best suits your needs, which means the best home loan rates.
 
Direct lenders remain in direct contact with the borrower, and there is no intermediary in the case of direct lending. Direct lenders can be any financial institution like banks or individual companies.
 

Based on the lender's terms and policy, you may qualify for the mortgage (home loan). This whole process of lending needs extensive paperwork that you have to perform on your own.

Who are Direct Lenders?

 
A direct lender is a financial institution, bank, or private entity (companies) that approves your loan or releases the mortgage amount. The private mortgage company runs through online websites. Better.com and LoanDepot are a few examples of online direct lenders.
 
Many of those people who are remortgaging work with direct lenders if the previous experience of working with that lender is good. Working with the same lender again may save your time for research. Many lenders may also charge low fees and appropriate interest rates to their repeating clients.
 
To work with a direct client, you have to follow these steps:
  1. Submitting documents (paperwork),
  2. Applying for a loan (application)
  3. Approval of mortgage

Mortgage Bank

These are specialized banks that act as direct lenders and provide home loans in straightforward terms. Mortgage banks use their own money to mortgage, and they have their loan officer that works as a paid mortgage broker.
 
The banks also charge some interest to the borrower. After refunding (collecting loan), they sell this loan to a new market.

Portfolio lender

A portfolio lender can also be a bank or other financial entity that works with the same principle as a mortgage banker. The only difference between them is that portfolio lenders do not sell their loan funds into the secondary market. Instead, they keep that money in the investment portfolio of the lender.
 

Who are mortgage brokers?

 
Mortgage brokers are the middleman between the customer and the mortgage lender. The role of the broker is to locate the lender that best meets the burrower requirements.
 
They also collect all the documents, process applications, and sort out all the problems that might occur. Till the mortgage's approval, brokers remain connected with the client and thus save your time and energy.
 
Mortgage brokers have access to the whole market. Some lenders do not work as direct lenders, and you can approach them only through brokers. Due to the access to various lenders, making your deals at a low-interest rate is possible. Besides, if you are self-employed, have a bad credit score, or just wanted to refinance your home at a lower rate, then a mortgage broker is the best option for you.
 
Although, sometimes, it is more beneficial to go with a local mortgage broker in every state. For instance, if you are looking for a new home in Los Angeles, California ID Mortgage Broker firm can help you with the best possible rates. They remain available all time for your service and can provide you with a 100% FREE consultation. And the good news is that you usually do not pay brokers, but banks do (brokers take 1-2% commission from the net loan amount).
 

The key differences between mortgage brokers and mortgage banks

 
Mortgage banks are the investors that lend money. You have to refund that loan in a limited time with interest. Banks only offer their product, so you cannot get a variety of quotes.
 
Due to the availability of fixed products, the rates are non-negotiable. Banks require an excellent credit score, bank statements, tax returns (at least two years), pay stubs, and many more + charge processing fees to the borrower.
 
Mortgage brokers do not invest their funds for the mortgage loan but bring different quotes from the lenders. Brokers are licensed individuals who have access to various lenders or present quotes from the bank, so you can select the option that is meeting your credit score.
 
The brokers have whole-market access so that they can bring discounted rates on home loans. They are fees based workers who charge some commission from the lender.
 

Pros and Cons of Mortgage Broker

Pros

  • Bring the rate that best suits your requirements. You can select a lender or deal of your choice from the pool of lenders. In a nutshell, they offer the best price.
  • Brokers are experienced men and familiar with the mortgage market, so they disagree with the unfair deal.
  • Their profit commission is negotiable and does not charge hidden fees.
  • They save you from many hurdles, and your broker collects the full information needed for loan processing.

Cons

  • Brokers sometimes work for a specific lender, so they bring limited offers
  • Mortgage processing through brokers takes time because sometimes they remain unavailable or remain busy with other clients.
 

Pros and Cons of Mortgage Bank

Pros

  • Direct communication with the lender (bank) makes the process faster.
  • Most of the mortgage bank offer loan at low prices
  • Banks have their in-house loan officer. They provide consultation to their client and give them knowledge about the complete procedure.
  • Banks are the most obvious choice for home loans if you have all your papers: paystubs, tax returns, and perfect credit score.

Cons

  • Take lots of time, and you have to visit the bank (lender) multiple times for processing.
  • Banks offer their product only, so you do not have several options to select the best suit.
  • Mortgaging directly from the bank is very tiresome as you have to sort problems on your own.
 

The Bottom line

 
Which process is right for you depends on your credit score and how fast you want a mortgage. In some scenarios, banks can be the best option for you, while on the other hand, if you are looking to save on a home loan and find the best rates, mortgage brokers perform well.
The main difference between the both is the availability of a variety of products and the discounted rates.
 
People with low credit scores should hire a mortgage broker instead of going for a mortgage bank. Brokers know the whole market to bring such lenders for you that will make considerable negotiation depending on your requirements.
 
Banks often take too long to process the application if you do not ask for their availability before hiring, but brokers quickly do the same mortgage.
 
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