If you’re searching for a new mortgage you might want to consider your options before deciding on the right lender for you. You may wonder, what is the difference between Banks and Mortgage Brokers? Let’s discuss so that you can make informed decisions when it comes to making quite possible the biggest purchase of your life and being responsible for a payment that could last up to 30 years.
First of all, you can get a mortgage from either a bank or a mortgage broker. The biggest difference between the two is that mortgage brokers do not lend money directly as is true of banks. Mortgage brokers work with a variety of lenders. Typically, mortgage brokers work with wholesalers of banks. Thus, even though you are working with a mortgage broker, you will still most likely end up having a loan with an actual bank. The role of the mortgage broker is to “shop” the various lenders that they have access to in order to get you the best rate and terms. One of the biggest benefits to a mortgage broker is that they have access to many lenders and if you do not qualify for one lender, they may have other options. This allows them to finance “more difficult deals” as banks traditionally have more conservative programs and not as many different programs.
So, do most people get mortgages from brokers or banks? At one point before the real estate down-turn, mortgage brokers originated roughly 30% of all mortgages. However, that percentage has fallen to about 10%. The reason being is that banks are not as aggressive with wanting to give deals through their wholesale channels as they were in the past. In other words, it used to be that mortgage brokers had much better rates than traditional banks as it was cheaper for the banks to use their wholesale channels to get new mortgages. Banks have now shifted to using their lending capital to make loans directly as opposed to through brokers. Just to be clear, mortgage brokers can still be just as competitive as a bank but you will need to shop around to be sure.
Banks are still the most popular place to get a mortgage loan. This is often the case as buyers find it a natural choice to go to the bank in which they have a checking account or banking relationship. Banks are also seen as trustworthy by most homebuyers. One of the advantages to going to your own bank is that they already have a good bit of information about you such as your social security number, address, account history etc. Another advantage is that it can be easy to pay your mortgage at your local branch or a little easier to pay online via online banking. They may also offer a discount for setting up an automatic payment from your checking account.
Whether you choose to get your mortgage through a bank or a mortgage broker is up to you entirely. We recommend that you “shop” at least 3 lenders and compare the quotes “apples to apples” which means that each lender should give you a Good Faith Estimate (GFE) for the same rates (fixed or variable) and terms (length of time such as 30 years). You will also want to ensure that each of the lenders gives you a quote with or without origination fees. For example, when asking for quotes from different lenders, you should specify that the estimate should be for a 30 year fixed loan with a 1% origination fee or a 30 year loan with a 5 year ARM with no origination fee. It is impossible to evaluate different lenders if they are providing you with deals that are totally different. Thus, make sure that you are comparing comparable deals.