Mortgage Banker vs. Mortgage Broker

Mortgage Banker
The mortgage banker is the lender; the one making the loan directly. A mortgage banker will present you with only that lender's program of mortgages, so you need to speak with several lenders to do comparative shopping. Usually banks will be competitive in a few products, and will encourage their sales agents to sell these products to the consumer. Many times banks will not even necessarily try to be competitive in rate, but will instead try to fill a niche, such as quick approvals or flexible underwriting of loans. Going directly to the bank or source was probably the way that your parents obtained their home loan, but the trend is clearly away from such direct establishments towards the brokerage. If you walk into your local bank they'll usually take your application there, perhaps underwrite your loan there, and lend their own money. If your loan is declined for whatever reason, you will need to begin the process again with another source. With a broker, you have another chance if one lender doesn't approve your loan.

Mortgage Broker
You can think of a mortgage broker in the same terms you think of an independent insurance agent. When you go into that agent’s office, you present your needs and the agent searches for the insurance companies that can provide you with the best coverage at the best prices. This is the same basic service provided by a mortgage broker. When you choose a mortgage broker, you’re asking this person (or company) to search through mortgages offered by various lenders for those that would most closely suit your needs, and to provide the options with the best prices. The benefit is that these brokers know details about the banks, credit unions, and other lenders that you may not know and which ones are most agreeable to financing homes for people in your particular situation. A mortgage broker serves as a matchmaker between the home buyer and the lender. The broker draws from a pool of lenders to find the right match. The broker has access to the products of hundreds of lenders, not just one lender's programs. In scanning the mortgage market, both nationally and regionally a broker knows a lender's specialty. The broker can identify what lender might fit a borrower's special needs, such as the first-time home buyer, investment purchases, second homes, etc. The broker does everything the lender would do. A Broker checks your credit and work record, arranges for title search and hires the property appraiser. Once all of this information is compiled, the broker selects a mortgage lender that will most likely accept your application based on your financial data and personal information. Brokers represent a number of lenders and offer these lender's products through a wholesale arrangement. So the broker can offer wholesale rates, as opposed to retail rates. By offering wholesale rates, a broker can in fact be more competitive than the retail side of the same bank. This is happening more and more as brokers are moving their services to the Internet and reducing their costs of distributing loans to the consumer.

Bankers make their salary whether you take the loan or not. Brokers only get paid when the loan closes. Who has the most motivation to get you a loan?

In Summary
The advantages of working with a broker are substantial and account for the shift away from banks and direct lenders. Understanding the loan process can minimize the likelihood of frustration during the loan transaction. Remember to work with a source that has established itself as a company with integrity that cares for the borrower throughout the experience. The majority of people find that better deal with mortgage brokers. About 65 percent of home loans are originated through brokers. Borrowers who have trouble qualifying, or want to finance tricky deals will often get turned away at banks. So for these people, using a broker is often the best option. And pricing with brokers can be just as competitive as a bank. Wholesale prices are actually much cheaper than retail interest rates you’ll get with banks.

Pros of working with a broker:
- They do the legwork for you, comparing the wholesale rates of a large number of banks and lenders
- Wholesale interest rates can be lower than bank interest rates
- Brokers must disclose the yield-spread premium
- Can finance tricky deals

Cons of working with a bank:
- Conservative loan programs
- Do not disclose the yield-spread premium
- Lengthy process, very bureaucratic