Who Should You Choose? Mortgage Broker Or Bank?
By Sadiya Anjum
When you are looking for a mortgage to buy your new home, you may wonder whom to approach: a lending institution like a bank or a broker? There are a few fundamental differences which distinguish the two. You have to pick the one depending on factors that are important to you and the best mortgage that is available. A mortgage does not depend only on the interest rate but also on points, closing costs and other fees. The one who offers you a good option with the overall picture in mind is who you should select.
Loan officers are basically employees of a bank or any other financial institution which provides loans. The loan officer will review your financial situation and explain about the various mortgage options the bank or his institution offers. When your credit check receives an all clear, he will take the next step in processing the loan.
Mortgage Brokers are like freelance agents who bring buyers and lenders together. The broker will study your financial situation and recommend the kind of loan and lender for you. A good broker will help you through the process from start to finish and deal with document processing, arrangement for an appraisal, title search etc.
There are certain aspects that loan officers (representing a bank/ financial institution) and mortgage brokers differ in:
Source of money – The loan you obtain from a bank arises from itself but the broker does not have the money. He leads you to the lender who can give you the money. So the option of approving a loan lies with the bank and a lender but not with a broker. So when you go to a bank, you are approaching the direct source instead of a middleman.
Source of mortgage options – The loan officer will exclusively represent his institution and although he may present a wide range of mortgage options they are all from one source (his institution). The broker usually has a wide range of contacts (lenders), in effect mortgage options from different sources.
Regulation – A lot of debate arises over the regulation and control that brokers seem to lack. In some states brokers may not require a license but usually brokers are members of professional associations which may establish rules and regulations. In addition there are federal and state laws including federal enforcement agencies keeping a watch. But banks comparatively have more regulation since they have a corporate outlook.
Fees – A broker charges a commission depending on his involvement and the size of the loan. There really are no fixed charges on his services and document processing jobs. A bank on the other hand will state upfront how much they charge.
Blunders – If your broker makes a mistake then you may be unable to do much or recover easily from a problem. With a bank, any errors or problems can be taken to the person higher in command and the possibility of fixing a problem is better in comparison to a blunder made by a broker.
Special cases – Sometimes there may be cases where a bank may not approve you for a loan for various reasons. A common example is a case of bad credit score or history. A broker will be able to study your situation and find you a lender who deals with cases like yours.
It may still be difficult to choose between a bank and a broker. The simple solution for this is to shop around and ask about the various options available from both sides. Whoever offers you the best mortgage option should ideally be your choice. But irrespective of bank or broker, remember to find someone who has a good reputation. Ask your friends, family, colleagues etc. for referrals so you know exactly whom you are dealing with and what their history looks like.
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