Homebuyers who are in search of a home loan have two main sources of funding: banks and mortgage brokers. Although both of these options can be good ways of helping people obtain the money necessary to buy a home, there are some individual scenarios where one approach will be more favorable to the borrower. So, should you get a mortgage from a bank or a broker?
How Do Loans From Banks Work?
A mortgage bank uses its own money for funding mortgages. The loan officers, underwriters, funders and processors involved in the loan process are all working for the same bank. Once the loan has funded, the lender might keep it in their portfolio of investments or sell it to investors.
Loans are typically sold by loan officers, who serve as the sales force of a bank and earn commissions on the loans they originate. Loan officers will only sell loan products that their bank offers. The same loan may be offered at different price points with various rates attached to them.
How Do Loans From Mortgage Brokers Work?
Brokers can be thought of as being salespeople for wholesale lenders. They are often smaller than banks and use rate sheets provided by wholesale lenders listing the rates and prices for various loan products. They can help people find the right product to suit their circumstances and are not confined to only the options offered by one particular bank.
In some cases, the borrower might pay the broker’s commission, which is usually around 1% of the amount of the loan, or it might be covered with a yield spread premium attached to the loan.
Who Should Deal With A Mortgage Bank?
If your loan is expected to be a straightforward transaction and you have strong income, assets and credit, it may be possible to save money and time going through a bank.
In addition, people who have an established relationship with a local banker may find the borrowing through their bank is a better experience. Some people prefer the convenience and “one-stop shopping” of obtaining a loan through their primary banking institution. Qualifying for a loan from your bank may be easier because they already have access to much of your financial information.
However, it is worth noting that unlike brokers, banks are not required to disclose how much money they will make on your loan. This means that you could end up paying more than necessary if you do not shop aggressively.
Moreover, mortgage banks do not generally offer as many products as brokers do. This means you may not be able to get the loan that is best for you. It is also worth noting that many banks are more conservative about making approvals.
Who Should Deal With A Mortgage Broker?
Many people prefer to work with a mortgage broker because they have access to the loans offered by several wholesalers. This increases the chances of finding a more specialized product with a more favorable rate.
While many banks only offer conventional mortgages, brokers typically have access to additional types of loans, such as VA loans, USDA loans, FHA loans, jumbo loans and loans for borrowers who have bad credit. They can also offer a more personalized loan experience that provides solutions to issues such as low down payment availability, a desire to avoid mortgage insurance or limited credit history.
A broker’s compensation will be clearly disclosed on the closing statement, which means this approach provides greater transparency than going through a bank. In addition, brokers are able to set their own profit margins, which means they can be easier to negotiate with.
If your loan application involves any sort of challenges, it can be incredibly beneficial to work with a broker who knows how to find flexible lenders. Good brokers know which lenders have tough standards and which are more likely to approve certain types of applications.
The main drawback of using a broker is that they have less control over the loan process because they are not employed directly by the lender. This means that they may not be able to rush processing if there are delays on the part of the underwriter. Although loans through brokers may occasionally take longer to close, this is only a concern in cases where there is a tight deadline.
If you are unsure which approach is best, consider obtaining quotes on a loan from at least one broker and one bank to gain a better understanding of the process and the types of rates you will be offered.
Get In Touch With The Professional Mortgage Brokerage
Getting a home loan does not have to be complicated. If you are interested in exploring the financing options available to you for purchasing a home, get in touch with the mortgage experts at MyLendingPal for help finding your ideal loan.