Mortgage brokers are licensed and regulated financial professionals by the NMLS 1. They request documents from you so they can run your credit report, verify your employment and income, and analyze your debt to income ratios. They use the information to place you into a loan you’ll qualify for with one or more lenders in a short stretch of time.
Mortgage brokers hire licensed mortgage originators (aka loan officers) to work for their company typically paid as a 1099 independent contractor. Some are newbies while other are seasoned professionals.
Banks don’t offer loans for free but do tend to cost less than a mortgage broker. However, a mortgage broker could be well worth the fee they charge which is generally one to two percent of the loan amount. Moreover, an experienced mortgage broker may have business partners that may help you save on other third party fees, such as an appraisal, home inspection, and homeowners insurance.
A mortgage broker can help you save time by submitting your file to multiple lenders. An experienced and good mortgage originator knows the pros and cons of some of their lenders.
They are engaged in a lot of communication with the assigned underwriter for the loan to make sure the process is running smoothly. A mortgage broker and/or their loan processor can save you a lot of inconveniences that a bank may put you through by doing a bulk of the communication with the underwriter, title company, closing agent and insurance agent.
Always review their fees if you’re still deciding on a lender (broker, bank, online or traditional). On your “Loan Estimate” form look in section A: “Origination Charges.” Review each Loan Estimate you obtain from each lender, and do a comparison side by side.
Sometimes borrowers are lured to choose one lender who’s offering a 4.00% interest rate over another lender offering a 4.25% rate, but the lender with the lower interest rate may also have much higher closing costs. Double check that the interest rates and loan program are the same and then check the fees and closing costs. The competitive price comparison among different options and lenders is a great way to make a choice in what is probably going to be one of the largest purchases in your life.
Not everyone should go apply for a mortgage by themselves or without a good loan originator. It’s not as easy as shopping for an airline ticket or buying new furniture. Usually a mortgage broker has many years or even decades of experience to guide you through the process while a bank loan officer tends to have much less.
When choosing to work with a broker, you tend to have a more personalized loan experience, where they can identify solutions to challenges the bank may have, such as a five or ten percent down payment on a $1.5M home, low credit scores, mortgage without tax 1040s, or a loan product that will avoid mortgage insurance.
Meanwhile, an institution like Wells Fargo or Bank of America may only offer Fannie Mae and Freddie Mac conventional mortgage loans. Getting loan with a bank is kind of like the difference of having access to only local TV channels vs. having access to hundreds of satellite channels. That’s not always a bad thing if it meets your needs.
Since it’s more personalized, you might find yourself more involved in the mortgage process as opposed to getting a loan at one of the big banks. Because it can be more involved, it doesn’t mean you have to speak to a person or see them in person.
There’s numerous mortgage companies and online mortgage loan originators that do an excellent job at successfully closing your loan all while working remotely, through email or even text messaging. Documents and loan disclosures are signed electronically on your smartphone or laptops.
A big bank might just tell you that your credit score is too low for their few loan programs, whereas a mortgage broker will likely have a loan program to solve the issue. In addition, they can elaborate about how credit scoring works, review your credit and make suggestions to pay down or payoff specific accounts to increase your score in the future. A big bank most likely won’t make any extra effort for you while the mortgage broker has a much better chance to find solutions if/when any challenges come up.
Advantages of using a Bank
Licensed in most, if not all 50 states.
Save money on fees that a broker would charge
Disadvantages of using a Bank
– Less flexible requirements
– Less mortgage options to qualify for
– May not get the lowest rates
– May not be able to approve you without a 620 credit score
– Loan officers are sometimes inexperienced
– Limited availability after banking hours
– Appraisal is likely not transferable to mortgage broker
Advantages of working with a Mortgage Broker
– Wholesale interest rates can be lower than retail bank interest rates
– More loan options due to working with numerous banks and wholesale lenders
– Ability to get tough loans done due to their expanded knowledge and many lending partners
– Ability to close on your home faster than a traditional bank.
– Easier to get a hold of by phone, email, or text and less bureaucracy
– May be a correspondent lender which means they have the ability to close your loan in 10-14 business days at very competitive rate
— Can change brokers or loan officers if you don’t like them and transfer the appraisal.
Disadvantages of working with a mortgage broker:
– May end up paying more money
– Promises the moon to get your loan in process, usually by newbies
— Has less control over your loan file because it’s not underwritten in-house
– May be working with a newbie loan originator (in some cases) during the home loan process
Not everyone’s experience will be the same…
• Banks and brokers can differ considerably in both service and in fees
• With a broker you get one person who may be highly regarded
• With a bank, there’s numerous employees which means your experience may depend largely on the employee you get.
Here’s the difference from a loan officer who worked at a bank for 15 years.
1. Brokers are better educated and more experienced. Most brokers have worked in the business longer and have left the bank because they prefer to have more control and don’t need the bank to generate leads for them. You are taking a big gamble with a Bank, most are just order takers. Even the good ones have far less control over their loan process.
2. Brokers have greater pool of lending resources. They can work with multiple investors to find the best product and price for your loan scenario. Most brokers have less overhead, fewer bureaucratic layers, lower fees and higher payouts at the same pricing point.
3. Brokers truly do care about the customer’s experience. Banks just pretend to. This makes a huge difference. Banks try and fit every customer into a box, or a process and every loan is just a numbers game. Sometimes their loans go smooth, but when problems arise, Banks are pretty slow to react. At a Bank, if one or more clients gets upset, eventually another manager comes into the branch to replace him or her. At a mortgage broker company, their reputation and referral source is at risk so providing outstanding customer service is crucial.
However, your experience can truly vary based on the location, the person you’re working with, and the lender. By simply reading some reviews online you’ll find complaints about the banks and mortgage companies you may be considering. It is similar to working with a real estate agent home inspector, closing agent and so on. Some companies are truly great while others are horrible and should never have been licensed.
A true game changer is when you are working with a mortgage company that can broker loans and also act as a direct lender where they underwrite and fund the loan in their company name. They are known as a correspondent lender. The comparison of who’s better ends there since they can do both, and then it’s just pudding on the cake when the loan officer is a true professional.
You need to feel confident about the person you’re working with. Shop around a little bit and ask for references. Speaking of references, a real estate agent usually refers their client to their preferred lender; a bank, mortgage broker and sometimes both.
- NMLS – https://nationwidelicensingsystem.org/