Mortgage Broker vs. Mortgage Banker: Know Which Is Best for You

Since the great housing bubble market crisis over a decade ago, rules and regulations around mortgage loans have changed. Back then, mortgage brokers had most of the control of the loan origination market.

And some dodgy dealings by few of them gave the whole industry a bad reputation. If you’ve heard horror stories about mortgage brokers, you’re not alone. It was like the wild west back then.

But the SAFE Mortgage Licensing Act of 2008 put tighter restrictions on the broker industry. Meaning, there’s a lot more protection for borrowers now than there used to be.

Brokers now have to pass licensing exams. And they are prohibited from taking premiums from lenders for persuading borrowers to choose higher loans.

The industry is a lot more trustworthy now than it used to be. So, homebuyers, don’t fret – you can go ahead and work with a mortgage broker and still be protected.

What is better, though? Getting your mortgage loan through a broker, or directly from the bank? Keep reading for the pros and cons of working with a mortgage broker vs. mortgage banker.

What Is a Mortgage Broker?

Simply put, a mortgage broker is the middle-man between the borrower (you), and the lender (the bank, or the credit union).

Their job is to shop around on your behalf to find the best deal for your mortgage loan. They work with a variety of different lenders and negotiate on your behalf, working closely with your realtor.

They do all the nitty-gritty work for you. They guide you through gathering the necessary paperwork like income statements and credit reports. And then they use that information to shop around for the best available loan.

Brokers are paid by commission. The standard is 1 to 2.5% on the total loan amount. Because they are paid by commission, it is in their best interest to find you the best deal so that you choose to work with them over another broker.

Depending on the type of loan, the commission is either paid by the lender or the borrower. For no-cost loans, the broker’s fees are baked into the amount of the total loan and paid for by the lender.

In some cases, this can mean higher interest rates. For lower interest rates, borrowers can choose to pay a ‘loan origination fee’ directly to the broker. The percentage is often the same – between 1 and 2.5% of the total loan amount.

Regardless of the type of loan you’re going for, it is highly recommended to shop around to find a broker with good reviews and a good reputation.

For instance, this is considered to be the best mortgage broker in Brisbane. Use this mortgage calculator before you even begin the process, so you’re not doing in blind.

What Is a Mortgage Banker?

A mortgage banker works within the lending department of a specific institution. A bank. Their job is to vet borrowers and sell secure loans to those who qualify.

They work directly for the lending institution and have the final say whether or not a loan is approved. They work closely with the borrower and their realtor to take the loan process from start to finish. And it’s all done completely in-house.

A mortgage banker gets paid by salary. Some companies will offer bonuses and incentives for high performing staff, but generally speaking, they’re taking home the same amount of money each month. Regardless of the loans, they close.

Mortgage Broker vs. Mortgage Banker

So, which is better? A mortgage broker or a mortgage banker? There are pros and cons to each, and it all depends on you, the borrower. Your loan requirements and your credit standing.

Pros and Cons of Brokers

Brokers offer the benefit of variety. They aren’t obligated to work with anyone lender, so they have the ability to shop around and find you the best deal.

If a borrower has credit issues, for example, they will often get rejected by a bank straight away. A broker has the knowledge of the lending industry and knows which institutions are a little less strict on their qualifying terms.

Brokers are now required to be transparent about their fees. And it’s in their best interest to get you the best deal. They know you could easily go somewhere else and they won’t get paid.

Because of their large network and relationships with various lending institutions, brokers can have lenders competing over your loan. This can work out well for the borrower, as more competition often results in better rates.

However, brokers are not the ones with the final say. And when all is said and done, broker fees can be higher due to their access to more options and more complicated loans. They can also take longer to close.

Pros and Cons of Bankers

The bank has the ultimate control. At the end of the day, they are the one who is lending the money. Working with a bank can get your loan closed faster, simply because they are the one making the decision.

A broker could get held up waiting to hear back about minute details, while a bank can make the decision right then and there and move on to the next step. Banks also offer specialized assistance for first-time home buyers.

If your loan requirements are straightforward and you have good credit and a strong income, chances are a bank will approve you right away. The whole process could be done and finished by the time you would have chosen a broker.

If you’re a longtime client in good standing with a bank, that relationship could make it easier, cheaper and faster than shopping around with a broker.

If your situation is more complicated, a broker has the ability to access more options. Banks are limited to the confines of the options offered by their employer.

The Bottom Line

Brokers offer variety. Bankers offer control. Working with a broker will inherently take more time because of the nature of their job to shop around. But they might be able to find you better deals because of the options at their disposal.

If you have strong credit and qualify right away, your loan can be approved by a banker in the time it takes for them to sign the paperwork. So really, the answer to the mortgage broker vs. mortgage banker question all comes down to you.

What do you value more – options, or control? Check out our real estate blog for more tips and advice.

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