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Mortgage brokers versus banks
While a mortgage broker can help you comb through all the lenders in the market, a direct lender won’t charge you a broker fee.
Here’s a rundown of the key differences between brokers and banks in terms of service, loan options and more.
| Brokers | Banks | |
|---|---|---|
| Service | A broker guides you through the various mortgage options available through their network of lenders and helps you compare rates, fees and features. A broker can help pull your documents together and verify your credit, income and employment for an easier application process, regardless of which lender you choose. | A bank has loan officers that will explain the mortgage products available at that particular bank and help you find the best one for your needs. A loan officer will guide you through the application process, helping you gather documents and verify your credit, income and employment. |
| Mortgage options | A broker acts as your middleman and provides access to an entire network of lenders and home loan options, including wholesale mortgage lenders’ products. | Banks have their own set of mortgages that they can offer to borrowers. The selection of home loans depends on the bank. While large banks typically have a larger number of loans, credit unions may also offer a diverse selection of mortgages for borrowers in a variety of situations. |
| Benefits | You get expert help from a professional who has their finger directly on the pulse of the lending market, allowing you to compare interest rates across a wide selection of lenders. A broker can be useful if you have a low credit score or extenuating circumstances that make it harder for you to find a home loan on your own. | Loan officers from a bank can provide detailed advice similar to a mortgage broker, except you are limited to the bank’s mortgage products. Banks can sometimes offer package deals on other financial products, like credit cards and savings accounts. In some cases, you can even get a discount on your loan’s fees or closing costs if you link your loan to the bank’s other products. |
| Drawbacks | As a middleman, a broker adds another step to the process of applying for a loan. Some of the lowest rates are only offered by smaller nonbank lenders who aren’t always on broker panels. Brokers work for you, not the lender, and you must pay a commission for their services. | Borrowers in unique or complex circumstances may have a tougher time getting financed directly with a bank. Banks want your business and generally won’t tell you about similar or better products offered elsewhere. |
| Commissions and fees | Brokers could charge you a commission from 2% to 5% of your loan’s total value. This is on top of any fees the lender charges for your loan. Which option is more expensive depends on the loan product and interest rate you receive. | Banks typically charge a range of fees, including origination, application, underwriting and third-party fees. These fees typically add up to 2% to 5% of your home loan’s value. But every lender is different, and some online banks charge no origination fees to their customers at all. |
The mortgage broker process explained
A mortgage broker assesses your situation and your creditworthiness to develop a better picture of your chances of qualifying for a home loan.
- They take your information and work to find a loan that meets your needs as closely as possible.
- You make your choice, and the broker will guide you through the application process.
- If you have questions about your mortgage options, contacting a broker can be very helpful.
The pros and cons of using a mortgage broker
Pros
- Larger selection. Brokers offer choices to a wide range of lenders, and a good broker is adept at finding the best deals.
- Can help with approval. When seeking a mortgage via a bank, the broker can also advocate on your behalf, increasing your chances of success.
- Eases the process. Mortgage applications can be overwhelming. A broker helps get your application paperwork together with a minimum of confusion.
Cons
- Increased cost. Brokers aren’t free. You could pay up to 2% to 5% of your mortgage’s value in commissions.
- More time spent researching. Due to the sheer number of brokers out there, it can be difficult to determine which brokers have the most experience.
- Might be unnecessary for you. If you don’t have a solid understanding of the finance and mortgage industry, it can also be difficult to judge what is a good deal or when you might do better visiting a local lender over a broker.
What does a bank loan officer do?
Bank loan officers work for one specific bank or lender and often receive volume incentives when providing clients with loans.
If you’re already the bank’s customer, have great credit and a stable income, you’ll most likely find a good rate through your bank. A loan officer can match you to the best loan product available within that specific bank. If you meet the criteria and this option is available to you, don’t be afraid to ask for a better deal on your mortgage.
The pros and cons of going directly to a bank
Pros
- Specialized knowledge. Going through a bank loan officer gives you access to the very best deals at the bank or lender you choose to work with. Bank loan officers are also experienced in working with their bank’s policies.
- Discounts for existing customers. If you’re already a customer, they can often structure a loan to work with other bank-provided products you already have.
- Direct customer service. By dealing directly with your lender, any questions you have can be addressed without taking the time to go through an intermediary.
Cons
- Limited selection. A bank loan officer only has access to the loans offered by the bank or lender they work for, which can restrict your mortgage options.
- Tougher requirements. If you’re self-employed or have bad credit, many banks may not approve your application. A broker will help you find a lender that can.
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Bottom line
Whether you’re a new homebuyer or want to refinance your existing mortgage, there are many options available. If you’re ready to start looking, compare mortgage lenders to find the best loan for your situation.
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