When you’re applying for a mortgage, you have the option of working with a mortgage broker and working directly with a bank. There are pros and cons to each one, but the experience is completely different. Deciding whether to work with a mortgage broker or a bank is important because it influences the choices you get when looking for a mortgage.
What is a Mortgage Broker?
A mortgage broker is an independent agent or company that acts as a middle man between a borrower and wholesale lenders. Mortgage brokers don’t lend money directly to borrowers, and they don’t make lending decisions. Mortgage brokers don’t represent lenders, either. Rather, they have a working relationship with lenders. One mortgage broker usually works with several wholesale lenders. This gives mortgage brokers access to a wide range of financing products at a variety of price points.
What is a Wholesale Lender?
The term “wholesale lender” is likely one you’ve not heard before. A wholesale lender is simply the term used for a bank or other financial institution that utilizes the services of a mortgage broker to match them with potential borrowers. Wholesale lenders don’t engage directly with borrowers. A wholesale lender typically would have a name that you don’t recognize. The lenders that are most familiar to you are retail lenders. That is, they directly process mortgage applications and directly lend money to borrowers.
Working With a Bank
When you apply for a mortgage directly with a bank, that bank is the one that takes your application, processes it and determines if you get approved or not. That same bank will likely be the ones that actually lend you the money, too. When you work with a bank, you will have a point of contact who is an employee of the bank; typically a loan officer. Loan officers make commissions from the bank when they originate a successful loan application. The main thing to realize about a loan officer is that they are only permitted to offer products that the bank offers. Since they work for the bank, they represent only that bank. The loan officer is not permitted to direct you or offer you any other product that’s unrelated to the bank’s offerings. Now, loan officers do have one power you should also know about.
They can offer you loan products at varying rates. They can offer to sell you points so you can get a better interest rate. They can offer you different rates depending upon how much more money you’re willing to put down. And all this will be communicated with back and forth calls or emails with your loan officer.
Working With a Mortgage Broker
Working with a mortgage broker is quite different. They may suggest ways that you can improve your loan application. A mortgage broker matches up your qualification criteria to its relevant wholesale lenders. They will then take your mortgage application and send it around to all their wholesale lenders with which you are a good match. If a lender asks for more information, the broker will reach out to you. Everything goes through the broker. You won’t communicate at all with a lender. As you get nearer to a decision being made, your mortgage broker may come back to you with several offers. You might be able to have your pick of rates and terms that are more attractive to you. One thing is for sure, though. With a mortgage broker, you’ll be offered loan products that you’d never get by working directly with a bank. This makes it much more likely that you’ll end up with lower rates and better terms.
In the end, a mortgage broker or bank can assist you in getting a Home loan. However, you may find that you have more options available to you with a mortgage broker.