There are mortgage brokers, who work as middlemen between banks/mortgage lenders and borrowers on the wholesale end to secure financing for homeowners. And there are banks/lenders that work directly with
homeowners to provide financing on the retail level, known as consumer-direct lending.
Mortgage brokers are a big part of the mortgage business. Brokers serve an important role in the industry, and can be quite beneficial for both prospective homeowners and those looking to refinance a mortgage.
Borrowers who have trouble qualifying for a mortgage or need to finance tricky deals will often get turned away at the big banks that don’t necessarily specialize in home mortgages.
So for these people, using a mortgage broker is often the best option.
Brokers typically have access to far more loan products
and types of loans than a large-scale bank, whether it’s FHA loans, VA loans, jumbo loans, a USDA loan, or even a self-employed bank statement loan.
An institution like Bank of America might only offer
conventional mortgages, such as those backed by Fannie Mae and Freddie Mac.
If you go with a broker, you might wind up with a more
personalized loan experience, where they can carve out solutions to your problems, whether it’s a low down payment, limited credit history, or the desire to limit closing costs and/or avoid mortgage insurance.
You might feel a bit more involved in the mortgage process versus using one of the big financial institutions out there, though not everyone wants to speak to a human being, or see them face to face.
The application processes might also be quite different. A big bank might just tell you that your credit score is too low, whereas a broker may explain how credit scoring works.
Then make recommendations like paying off some credit cards or student loans to make you eligible in the future.
The takeaway is that a big bank probably won’t go the extra mile for you, whereas the broker might find solutions if/when any roadblocks present themselves.
And part of the reason is because a broker can turn to different lending partners, whereas a bank is at the mercy of its single suite of loan programs. They can’t shop your loan elsewhere.
So for someone who might need a helping hand, or simply wants more attention, a mortgage broker usually is the better option.
Brokers can offer lower mortgage rates in most cases.
Wholesale rates can actually be much cheaper than retail interest rates you’ll get with banks, meaning a lower monthly mortgage payment.
And the only way you could access their wholesale rates was through a mortgage broker.
These days, there’s also the option of going through a nonbank lender that doesn’t have physical branches or offer deposit accounts, which may result in lower mortgage rates and fees versus banks and brokers.
Some banks and mortgage companies may overcharge you and give you the run-around, while a mortgage broker may do an excellent job and secure a lower mortgage rate for you.
Real estate agents will typically refer you to their preferred bank, broker, or loan officer.
You are under no obligation to use them, though they can be helpful to quickly get through the mortgage preapproval process.
One benefit of using a broker is that the experience is probably a lot more consistent because it’s just one person (and their team), as opposed to a large bank with thousands of employees.
Brokers are easy to get someone on the phone or speak in person if you so desire.
Most of them provide personal service, meaning you’ll have a direct phone number to reach them, and can even visit them in their office if you have questions. You might not find the same level of service at the big banks…
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