Knowing The Role Of Mortgage Brokers, Mortgage Lenders & Banks For Owning A Home In Texas
If you have been looking for a mortgage company then you will have noticed that there are large mortgage companies and banks, and also mortgage brokers. So is there actually a significant difference between them?
What are the pros and cons involved in using a mortgage broker versus going through a bank?
In this article, we will be explaining all of the major differences between Mortgage Brokers and Banks, along with the pros and cons of each so that you can make an informed decision on which is the best option for you and your situation.
What Is A Mortgage Broker?
This professional is an individual who acts as the middle man between the mortgage lender and the homeowner. A broker is able to prepare your financial documents, loan applications and provide you with mortgage pre-approvals just like lenders are able to do.
A mortgage broker will work with several different banks and mortgage lenders and submit your loan files to these financial institutions for them to issue you a loan. The broker’s commission is paid by the lenders for completing your documents and mortgage application.
How Do Direct Lenders & Banks Work?
A direct mortgage lender or Bank is the company that is funding the loan. The loan officer is the person you will be working with and they work for the Bank. Banks are usually licensed in all or most of the 50 states.
Who Can Provide You With A Better Deal, A Mortgage Broker Or A Mortgage Company?
There are important things to take into consideration when choosing whether you want to work with a Bank/Lender or a mortgage broker. Although it might seem like working with a mortgage broker will save you money due to the fact that they have access to numerous lenders and programs, that is actually not always true.
The mortgage company pays the broker’s commission and some lenders pay higher commissions than others. In some cases that can generate a conflict of interest.
One lender might pay a small commission but offer the best deal. Another loan company might pay brokers a higher commission but be more expensive for borrowers.
Which Lender Is The Broker More Likely To Choose?
When you work with a Bank, your loan officer will only have access to the mortgage rates and mortgage programs that their Bank offers. You could potentially get a better deal from a different Bank.
Just be sure to shop around at all times, whether you are working with a Bank or a mortgage broker. You always should speak to at least two lenders or brokers and compare their loan offers. That way you can ensure that you really are receiving the best deal on a home loan.
That is how you save money on your mortgage.
How To Shop For A Mortgage
When you are shopping around for a mortgage loan it is a good idea to talk to both direct lenders and brokers. Mortgage brokers do have access to many different loan programs and hundreds of lenders.
They can shop for interest rates on your behalf and help you with comparing different terms like 15-year and 30-year terms, adjustable-rate mortgages vs. fixed-rate mortgages, and provide you with advice on other things so that a loan can be tailored that is ideal for you.
Using a broker instead of a direct lender can be advantageous if you have imperfect credit since there will be more programs available that you might qualify for.
Pros & Cons Of Both
Advantages of Working with A Mortgage Broker:
Working with an independent mortgage broker does have several advantages associated with it compared to going through a mortgage banker or bank. Brokers have the ability to submit your loan application to several different lenders. That can make them a very attractive option, particularly for borrowers who have a hard time getting a loan due to issues having to do with their income or low credit scores.
In these situations, there are several lenders that the broker has access to that might have programs with lower requirements. That can save you money and time in having to apply with multiple lenders in order to find one that will provide you with a loan.
- Access to multiple lenders for finding the lowest fees and rates
- Usually more knowledgeable
- More options available for individuals with bad credit
- A majority of brokers work for or own a small company which can make it easier to get in touch with them than a loan officer who works for a large bank or lender.
- If the mortgage broker is located nearby, then you can meet with them in person
Disadvantages of Working With a Mortgage Broker:
There are some drawbacks as well to working with a mortgage broker instead of with a direct lender. The broker, in some cases, might charge a higher origination fee. They are not actual lenders, so it might take longer to get your loan processed sometimes when you go through a mortgage broker.
Independent mortgage brokers often do not have an in-house underwriter that they have direct communication with, so they will need to submit your loan application to the lending institution’s underwriter. That can delay closing since it causes additional overlays.
They charge higher fees sometimes.
You might not get the best deal (they could have a preference for lenders that pay the highest commissions)
Delays In Closing
Advantages of working with Direct Lenders and Banks:
When you work with an actual lender instead of a middleman you will be able to avoid some of the fees you would need to pay to a mortgage broker. Your loan officer will get paid a commission when they close your loan.
On the other hand, mortgage brokers might not be that interested in finding the best deal for you, and instead, choose to work with the lenders that pay the highest commissions.
- Loans might not have as many overlays since it is a completely internal process
- If you use a Local Bank you might know the banker already who is processing your loan, which allows you to speak to the lender directly without having a middle man.
- A conflict of interest is not created by the commission that is paid
- You can save on fees that are charged by a broker
Disadvantages of Working with a Direct Lender or Bank:
Directly working with a lender does have some disadvantages. The loan programs with a Bank tend to be more rigid and come with higher requirements. If your credit score is low many local lenders and banks might not be able to assist you unless you have a 620 credit score at least.
Since the loan agent will not have multiple companies that can be compared, you cannot be sure you are receiving the best interest rate on your mortgage.
- Fewer mortgage options
- Sometimes the loan officer might be inexperienced
- You might not get the lowest rate
- Requirements are less flexible
To speak with one of our experienced mortgage professionals directly, just call us anytime or use any of the interactive tools that we provide throughout our website. We look forward to meeting and working with you.
If you have any questions, please feel free to contact us today!