Who do I use, a mortgage banker or a mortgage broker?
What’s the difference?
There is so much confusion in the mortgage business that many consumers assume that “mortgage companies” are banks that lend their own money. But in fact, a financial company that you deal with may be either a mortgage banker or a mortgage broker. If you’re confused, let me try and give you some direct answers.
Mortgage bankers (there are a lot here in South Carolina) are direct lenders; the bank lends you its own money - although it often sells the loan to the secondary market. Mortgage bankers retain servicing rights as well. In my opinion, you get more personalized service but sometimes not the best rates, as they tend to be more selective in the mortgage application process.
Mortgage brokers are middlemen; they shop around and analyze for the borrower and then put the potential lender and borrower together. Many of the lenders through which the broker finds loans do not deal directly with the consumer. In the banking business you call this a “wholesale” lender.
Going direct by using a mortgage banker can eliminate a lot of fees tacked on by the middleman broker and makes the loan process easier. But you must qualify and that's getting tougher. A mortgage banker can give you direct loan approval, but many mortgage banks are limited in what they can offer, which is essentially their own in-house loan strategy. In addition, you will be presenting your own qualifications one-to-one with the lender. Your initial impression is the one the banker will remember.
I am not suggesting you fudge your situation or mislead the possible lender, but understand that presenting a loan request to a lender is like presenting your yearly taxes to the government; there are many ways to do it, all of which are valid and legal. Some mortgage bankers also broker loans. Using a mortgage broker allows you to present a loan application to different lenders in different ways - that’s what you pay the broker for. Mortgage brokers find financing for you second-hand and charge fees for their availability to oversee the loan process. They have access to a wide variety of loan programs, so they also should have the knowledge of how to present your loan application to different lenders for approval. Mortgage brokers will not actually service the loans that they arrange for you, and you will probably never see your lender face to face.
With all the sub-prime mortgage default problems we are seeing in the news, lenders have become a lot stricter in their loan requirements. So shop around. Before you put in a contract for purchasing real estate get a feeling from your mortgage banker or your mortgage broker whether you actually “qualify” for a loan and what the rates will be now and in the future.
Bottom line: investigate where you can get the best deal. Do your home work and ask your attorney what you're getting yourself in for. Make sure your broker has the right credentials to help you - some states have no regulation or licensing requirements. If you're a real estate investor, I believe you should seek out both a mortgage broker and a mortgage banker. Pick the one who can work with you for the best rates and then weigh your options. It doesn't cost you too much except for an application fee - and sometimes that will be waived!