By Roger Odoardi
When it comes to getting approval for a home mortgage loan, borrowers can either work with a mortgage broker or a bank. Either option will take you one step closer to becoming a homeowner, but they involve very different processes and result in different mortgage terms.
As you get started, it's helpful to remember that whichever option you ultimately decide upon, both types of provider are competing for your business. Here are four major things to consider before you decide to work with a mortgage broker or a bank:
Customer Service - Getting approved for a mortgage can be a stressful process, and almost impossible to navigate alone. It's imperative that you partner with someone who can provide top-notch customer service, and draw on their experience in the mortgage industry to fully explain all of your options.
Generally, a mortgage broker has only one job, and that's to make sure you get approved for a mortgage loan. Most brokers will do whatever it takes—even if it means working around the clock—to help you achieve that goal. Also, since brokers are mortgage industry specialists with a dedicated mission, they generally won't attempt to upsell you things you don't want or need.
Many borrowers go to their bank when shopping for a loan because of a pre-existing relationship they have. Talking to and working with someone you know and trust, and who already knows your financial history, is both comforting and valuable during such a major life event. The quality of customer service you receive may vary based on the size of your bank. Smaller banks tend to provide more personalized customer service, but may lack specialized mortgage expertise, while the reverse can be true of larger banks.
Experience and Expertise - To reiterate, it's essential that you work with someone who knows the mortgage industry inside and out. Buying a home and determining how you'll be able to afford it can be an overwhelming process, but if you have someone with years of experience and expertise on your side, it becomes much more manageable.
All brokers must go through an extensive licensing process. Each brokerage's loan officers undergo an even more thorough evaluation process, which includes background checks and credit checks, and taking additional educational courses. The purpose of this is to protect borrowers.
Loan officers working at banks are required to be registered, but not licensed. This means they are required to register with the Nationwide Mortgage Lender System (NMLS) to receive a unique identifier number, and submit fingerprints for a state and federal background check and their personal history and experience. Although it is less stringent than the licensing process, registration still provides evidence of a bank loan officer's skill—and some banks also require their loan officers be licensed.
Cost - There's a major difference in cost between working with a mortgage broker and working with a bank. Since mortgage brokers typically have low overhead, they're less likely to charge additional fees; in fact, brokers are often compensated with commission via an agreement with lenders, so they might not charge you for their services. However, since some banks pay commission—and some more than others—a broker's impartiality could be influenced by their potential commission income. To safeguard yourself against this scenario, if you choose to work with a broker, ask them what their potential commission is for each option present to you.
Banks reward loyalty. If you have multiple accounts open with a particular bank, your banker might offer you discounts, such as on closing costs, to incentivize you to work with them. Also, since working directly with a bank eliminates the middleman, you'll probably pay fewer closing cost fees than you would with a broker.
Interest Rate Options - As a borrower, your goal should be to obtain not only mortgage loan approval, but a low interest rate, as well—and what type of interest rate you receive can depend on whether you work with a mortgage broker or a bank.
Mortgage brokers generally have access to a wide variety of mortgage products, with diverse terms and approval requirements. Since brokers aren't beholden to a lender, they're able to look for a mortgage with terms that are most favorable to the borrower. Should something go wrong—say, for example, you are denied for a loan—your broker can continue to work with you to find one that best suits your financial needs.
Familiarity can be a major differentiator when it comes to securing low interest rates. Banks are already familiar with a client's financial history, including the balance in each borrower's checking and savings account, which makes qualifying easier and could help you get a lower rate. Also, the longer your relationship with your bank, the more likely you are to receive more favorable interest rates.
There are pros and cons to working with either a mortgage broker or a bank. Your bank might be able to get you a better deal, but a broker might be the better option if you want someone to help you comparison-shop for the most favorable terms as they guide you through the loan process. Which one you choose depends entirely upon your specific situation. Be sure to do your homework before you make a decision by asking for references.
Roger Odoardi, co-founder, partner and licensed mortgage broker at Blue Water Mortgage Corporation, an independent mortgage broker serving Massachusetts, New Hampshire, Maine, Connecticut and Florida, has 20-plus years of experience in the financial services industry.
This article is intended for informational purposes only and should not be construed as professional advice. The opinions expressed in this article are those of the author and do not necessarily reflect the position of RISMedia.