Mortgage Brokers vs. Mortgage Bankers
If you are considering making a purchase this year then you are likely wondering what the difference is between a mortgage banker and a mortgage broker.
The basic explanation is that a mortgage banker is the lender, whereas a mortgage broker represents several lending institutions and serves as a liaison between the lender and borrower.
Which is better and why would you consider using one over another? The answer is actually somewhat subjective; here are some of the benefits of working with each, so you can decide which better meets your needs:
The National Association of Mortgage Brokers defines a mortgage broker as an “independent real estate financing professional who specializes in the origination of residential and/or commercial mortgages.”
Brokers work individually with borrowers, collecting information, documentation, and verification to process the loan application.
Once the loan package has been prepared and conditionally approved, the broker searches for an appropriate lender. Because they are independent, he/she has the luxury of searching for a loan based on the customer’s needs rather than the needs of their employer.
This can be a huge benefit to a buyer as they most often have several potential lenders to choose from that may be able to assist buyers that have credit challenges or can even provide credits to assist with Buyer closing costs.
Once the broker matches their client with a lender, they walk the Buyer through the paperwork through final approval, escrow deposits, and loan funding.
Brokers’ fees are paid by the lending institution and therefore are of no consequence to the buyer. Most banks will allow brokers to charge up to 1% of the loan amount for compensation. Banks are willing to pay this fee to brokers because brokers bring them business and do much of the legwork.
As defined by the Mortgage Bankers Association of America, a mortgage banker is an “individual, firm, or corporation that originates, sells, and/or services loans secured by mortgages on real property.”
Mortgage bankers are direct lenders. Working with them eliminates the middleman.
While brokers require final approval from lenders, mortgage bankers themselves approve or reject loans. Also, mortgage bankers may use automated underwriting systems, so working with a banker may prove more expeditious.
Mortgage bankers must have substantial net worth if they are to survive. Brokers, on the other hand, need only a store front and telephone in order to set up shop.
Because they are competing with both other bankers and brokers, mortgage bankers have no choice but to maintain competitive rates.