Buying a home can be stressful, from identifying the right property to negotiating prices and getting adequate financing. While a Realtor will be able to guide you through the home buying process they won't be able to walk you through the financing process. If you aren't paying cash you'll have to obtain a mortgage, you can either choose to get one from a bank or a mortgage broker. Both come with their unique advantages, and it is up to you to decide which channel works best for you.
Below we take a detailed look at these two mortgage channels.
Who Is a Mortgage Broker?
A mortgage broker is an intermediary between the mortgage lender and the buyer. The broker works to prepare loan applications, issue pre-approvals for mortgages, and submit complete applications to the lender. Usually, a broker works with several lenders and acts as the point of contact between lenders and home buyers. For their service, brokers earn commissions from the lenders and customers will, rarely if ever, be required to pay anything out of pocket.
Many banks offer different mortgages to their customers, but all these mortgages have one thing in common- the bank deals directly with the customer. If you are interested in a bank mortgage, your bank will in most cases assign a loan officer who is knowledgeable on the loan programs offered by the lender. The loan officer will help you identify a program that is ideal for you and help you complete your mortgage loan application. A loan officer generally offers advice based on your financial position and your relationship with the bank, among other factors.
Bank or Broker?
Working with a broker is just like working with a personal shopper. You just need to tell the broker about your budget and the kind of mortgage you are looking for, they will take care of the rest. Mortgage brokers work with many lenders, which means that they offer a wider variety of options.
A good broker will assist you in comparing the different terms, as well as give you information on lenders who are willing to tailor their products to suit your needs. This will save you time, money, and the headache that comes with trying to figure out how the different terms will affect you financially. In short, a broker takes the stress out of mortgage sourcing. Other benefits of working with a broker include:
- Brokers are more knowledgeable on mortgages in general - Brokers are easily accessible, and you can plan face-to-face meetings - Brokers have more options if you have bad credit
That said, the fact that the brokers are paid in commissions means that issues of conflict of interest may arise as some lenders offer more commission when compared to others. Other disadvantages of working with a broker include:
- Charging higher origination fees - Delays in closing and submitting applications to the lender
Working with a broker is advisable if your credit is imperfect. While the bank may turn you away, many other lenders are willing to give mortgages to people with low credit scores. A broker will let you know who these lenders are and help you in choosing the ones offering the best terms.
When using a bank, a loan officer can only guide you on the loans offered by the bank. This means that you may miss out on a better deal from another bank. In contrast, if you have done your homework and identified a bank with attractive mortgage packages, you may end up paying lower fees as there is no intermediary. Other benefits of working directly with a bank include:
- You can speak directly with the lender and negotiate for better terms -Fewer overlays as the process is internal and generally takes a shorter time - If dealing with your personal bank, it is easy to link your mortgage with your bank profile and have loan repayment automatically made from your account
While these advantages cannot be ignored, bank mortgages come with their fair share of challenges. Notable disadvantages include:
- Inexperienced loan officers who may not be in a position to offer the best guidance on ideal loan programs - Fewer mortgage options to choose from - Less flexible terms when it comes to repayment
To ensure that you get the best deal, take your time and see what these two channels have to offer. There are a lot of things to know about getting a mortgage. Go to at least two banks and two mortgage brokers and compare each of them. This way, you get to make an informed decision, and hopefully save some money on your mortgage. And never be afraid to ask your bank or mortgage broker questions. One of the biggest mistakes home buyers make is not asking questions and educating themselves.
About Michelle Gibson
Michelle Gibson is a top Realtor who has been specializing in residential real estate throughout Wellington Florida since 2001. She enjoys sharing her real estate experiences with buyers, sellers, landlords and tenants through her writing. Visit her website at https://WellingtonHomeTeam.com.