Difference between a Mortgage Broker and Mortgage Banker
Buying your dream house can be a long process, with different steps involved. Now, if you already found the dream house you're looking for, the next step is securing a mortgage for it. This can be the most stressful step for most of us, as it involves checking up on all of your financial data and applying to loans in various places.
When it comes to mortgages, there are primarily two options available:
1. Mortgage Broker
2. Mortgage Banker
Each of the above-given options serves a different purpose and suit the diverse intentions of a client. Let us delve deeper into what they entail.
1. Mortgage Broker
The primary function of a mortgage broker is to be a middleman. A broker has tie-ups with various types of lenders to offer their clients a variety of loan choices, but never lend out their own money. One example would be Pizzi Properties, a Jersey Shore & South Florida Realtor® Associate. They get the required funds for their clients in the manner chosen by the clients.
This lender in the tie-up could be any commercial bank, a specialized mortgage bank, a credit union, or even a small community bank. Some of the largest lenders in terms of mortgages are JP Morgan Chase, Wells Fargo, and Bank of America.
How the brokers differentiate themselves from any other lenders is that they can offer their clients a large variety of choices to pick from. Since any broker has a large number of connections to explore, they can suit any type of requirement their customer might have.
The broker should be able to get a number of different quotes from a variety of lenders for you to choose from. However, what differentiates an outstanding broker is that they are also able to provide you with a lot of extra information that will be able to help you attain a good mortgage deal. Such information could involve details such as:
1. Who is the most popular lender in a current area
2. Which type of investment should serve you better in the long run
3. If there are lenders who only offer a specific type of mortgage that is better suited for your requirements.
Approaching a broker can save a client lots of time and effort because the broker will find the best deal for you in the market. Another circumstance when a mortgage broker comes in extremely useful is when a client has a lower credit rating.
When an individual with a lower credit rating directly approaches a bank, he may not be able to take advantage of the best available options. To remove this hindrance, hiring a mortgage broker with good industry connections will ensure that you always receive the best possible deals available in the market.
Another added advantage of hiring a broker is that they will take care of all the paper-works and legal processes for their clients. When you hire a mortgage broker, you first inform him of all your requirements you need in place for the entire mortgage process.
Similarly, when any lender has a tie-up with a broker, he makes sure that the broker is aware of all the guidelines that need to be followed. Since the broker has an excellent understanding of the guidelines mentioned above, he looks at the information provided and ensures that it abides by these rules.
For example, some mortgages have a qualifying factor attached to them based on certain data about the client, such as the history of borrowing, financial status, amount of money in their savings bank account, etc. While you might not be aware of such information, the broker definitely will be. This should help you apply only for mortgages that you are sure to qualify for.
Therefore, instead of going around and visiting all the different lenders yourself, you only have to interact with one person. There are some banks and lenders in the business who deal with clients only through a broker. This helps in making the entire mortgage application process rather standardized, since each of them comes through a broker who is aware of the regulations in place. This also reduces the processing time of the mortgage with the lenders and lessens their burdens.
In the past, mortgage brokers were not always perceived positively. There weren't any institutional regulations in place, which lead to the entire process of approaching becoming somewhat dicey.
There were even instances reported where a mortgage broker had convinced his clients to take mortgages at an interest rate which was much higher than the current market rates, or even borrow a much more substantial amount than the client would require.
However, times have changed quite a bit since then. There are now several institutional regulations in place to regulate the workings of mortgage brokers. This enables them to become a good alternative for you to approach in case you need advice concerning any mortgages.
You shall have to pay a broker a certain fee, based upon the mortgage amount. Each brokerage has a different percentage of the mortgage amount as their fee. If the lender only meets clients through brokers, then there is a possibility that the lenders themselves might cover the brokerage fee.
However, we suggest that you do some amount of research before you approach a broker and do not blindly trust whatever he says. All of his suggestions should be followed up with you obtaining a bit more information about it. This will help you stay in better control of the entire mortgage application process.
It might also be a good idea to initially meet with two or three brokers before you decide to settle with one. Each broker has varied services, and the fees for these services vary from one to another. You should always take advantage of the best possible option available in the market.
2. Mortgage Bankers
A mortgage banker is a Lending Institution that you directly approach in case you require a loan. These lending institutions could be commercial banks, cooperative societies, credit unions, loan associations, among many others.
When you decide to approach a mortgage banker directly, the initial application process becomes vaguely similar to registering for colleges. You apply to several places that have the best rates available for you and suit all your requirements.
We suggest that you apply to a few backup institutions as well, to rely upon in case your first choices do not follow through. These institutions then select you based upon your application. However, this process would be much more tiresome for you as compared to approaching the lender through a broker like Pizzi Properties, a Jersey Shore & South Florida Realtor® Associate.
Directly applying to a lender might also be advantageous in many cases. For example, a bank where you have held a savings account for a long time may be able to offer you a mortgage at a good charge as compared to the current rates in the industry. Or, if you have paid off a loan before at bank, you already have a relationship of trust with them, which might help you obtain the mortgage at a good rate.
It also happens sometimes that some of the mortgage products with certain lending institutions are only available if you approach them directly without a broker. This increases the choice of products available.
Directly approaching a lender also removes the extra steps associated with middlemen that you do not have to go through. This might help make the process of obtaining the mortgage much faster.
Therefore, both Mortgage Brokers and Mortgage Bankers each have their benefits and uniqueness. You need to make an informed choice and select the one that is better suited to your requirements.