Broker v. Banker
Why would someone use a mortgage broker versus a bank? Explore some common myths on this topic to help you make the best decision.
Myth: Mortgage Brokers are "Middlemen."
Reality: Mortgage Brokers lend off other people's money, while banks lend off their own money. There are no true "middlemen" in either scenario.
Because banks lend off their own money, they are limited to offer their own products and rates. Because mortgage brokers lend off other people's money, they have the ability to shop for the best rates and programs among a variety of lenders. Mortgage brokers have access to more lenders, which means they have the greatest likelihood of the lowest rates as well as a program that best meets the needs of the borrower. In addition, mortgage brokers often partner with wholesale lenders, which typically gives a borrower access to lower rates than they would get at a bank's retail division. Finally, because banks lend off their own money, the question a banker will ask him/herself is, "Am I able to get this loan approved?" If the answer is no, the banker has no other option than to deny the borrower. A mortgage broker, on the other hand, will ask, "How can I get this loan approved?" The broker has the ability to shop lenders and programs until finding the best fit for the client. Also, since a broker only gets paid when a loan closes, they have extra incentive to find a scenario that works for even the most complicated borrower.
Myth: Banks will have the best interest rates for my loan.
Reality: Based on the information above, you may already have figured out the real answer to this question: banks are limited to the programs and rates offered by their own institution. They have no power to shop programs with lenders to find the best rate for a customer. (Nor do they have interest in doing so, as using their own programs earns the bank the greatest financial return).
Mortgage brokers are not tied to one bank or one lender; they have the freedom to shop around and find the best fit given the needs of their customer. This often results in getting the customer the best rates possible for their given situation. Some lenders, mortgage brokers or bankers, may try to lure customers in with extremely low rates. Many times, there are strict parameters a borrower must meet in order to qualify for these rates. Other times, the lender is planning to "buy down the rates." While this is a good fit for some borrowers, it can result in a higher loan and higher monthly payments, which is not always the best fit for all borrowers. If something seems too good to be true, be sure to ask questions to make sure what the lender is advertising truly applies to you and is in your best interest to pursue. At O Capital Group, we believe in being honest and upfront with our customers so each borrower can make an informed decision that best meets their needs.
Is the lowest rate always the best option? Watch to educate yourself on things to consider that impact your mortgage payment.
Myth: I have an excellent credit score, so it doesn't matter where I get financing. I can get the best rate wherever I choose to get my loan.
Reality: Better credit scores often result in more options, more likelihood of getting approved for financing, and lower interest rates. At a bank, you will likely qualify for the best rates at that particular institution. With a mortgage broker, you will likely qualify for the best market rates of any lender available. Where you go for financing will impact your rate, regardless of your credit score.
Financing your home loan through a bank limits you to the programs offered by that institution. Working with a mortgage broker gives you more options. The ability to shop rates with multiple lenders, which is what a mortgage broker will do on your behalf, often yields the lowest rates and best program possible.
Myth: Mortgage Brokers have extra fees and are more expensive than banks.
Fees can vary from bank to bank and from broker to broker. Typically, most fees will be rolled into the cost of the loan. (This is why some lenders claim to be "no fee" lenders. The reality is typically not that the loan is free; just that you are not asked to pay fees upfront.)
Whether you work with an independent mortgage broker or a banker, it is important to ask them up front what their fees are. In addition, ask for a loan estimate. This will outline all the fees associated with your loan. (These will also be disclosed at loan closing; however, it is very informative to review them prior to deciding which lender to choose). When buying a home, expect fees related to loan origination, underwriting, appraisals, title and escrow services, recording, and mortgage insurance (if needed). Again, these fees are typically rolled into the loan and may vary based on lender, loan type, location, etc.
Myth: Mortgage Brokers, Loan Officers, and Mortgage Bankers are all one in the same.
Reality: There are different levels of training and certification for each of these titles. Mortgage Brokers and Loan Officers are certified through the Department of Financial Institutions. They must take continuing education classes each year, as well as maintain current certification. Bankers, often referred to as Mortgage Bankers, are not required to be licensed or certified. They are hired and overseen by the bank for which they are employed, and they must only meet the hiring criteria set by the bank.
Due to the training and certification requirements, a licensed and certified Mortgage Broker or Loan Officer will likely be the most qualified and knowledgeable when it comes to the home loan and refinance process. The classes they take and the assessments they must pass to earn their certification are linked directly to the laws, programs, and parameters related to residential home loans and refinance. The continuing education courses they must take every year ensure they stay up to date with the ever-changing rules and regulations in the industry. A mortgage banker, on the other hand, is not required to take any of these classes or to be certified. They are trained by the bank. Often times, mortgage bankers have only general finance or customer service background and are trained to answer questions only related to the processes and programs offered by their select bank.
Myth: Big Banks caused the market to crash.
Reality: Housing experts attribute the 2008 market crash to a rise in predatory lending practices, loans with uncommon features often falsely marketed with limited explanation to the borrower, and limited oversight. Sadly, many lenders across the board took advantage of this market and gave borrowers loans they could not afford, contributing to the market crash.
After the 2008 housing market crash, new regulations were put in place by the Federal Government to prevent similar disasters in the future. These regulations prevent predatory lending and protect individuals from getting lured in and qualified for a mortgage which they truly cannot afford. Sadly, in any industry there will always be individuals and companies whose primary focus is profit margin. Their desire for the greatest profit outweighs ethics, customer best interest, etc. Even with new guidelines in place, they will still put their profit over the client's best interest. They may lure clients in with deals that seem too good to be true, only later to reveal extra fees, parameters, or conditions that are not in the client's best interest. Be sure you check reviews and testimonials from former customers. In addition, be sure to interview potential lenders before giving them your business. Look for an individual and company that is known for honesty, transparency, and high ethical standards. In this way, you ensure your best interest is kept front and center during your home loan process.
At O Capital Group, we make home loans easy!
Call today: (602) 492-8930
Myth: Going directly to a bank is the fastest way to close on a home loan.
Reality: The length of time it takes to close your home loan or refinance is likely linked to the size of the institution, the number of files being processed at a given time by an employee, and the technology and programs utilized.
Before starting a home loan, ask the lender you are considering for their average close time. At O Capital Group, for example, we average 14 days or less from submission to closing, pending the appraisal company's turn-around time. In addition, our mortgage brokers and loan officers can be reached directly, and they regularly complete same-day loan pre-qualification letters. This makes a big difference when buyers are trying to secure a house in a competitive market often saturated with investors and cash offers.
Banks, on the other hand, may take longer to process and approve a file. This is often due to the sheer volume of applicants and the number of bankers available to process the files in addition to any other banking duties which they may be assigned.
"I had a woman contact me as she had been waiting nearly four weeks to receive a pre-approval letter from her bank," recounts Kofi O. Okyere, President of O Capital Group, where home loans are made easy. "In less than the time she was waiting just for her pre-approval, we were able to get her entire home loan closed and get the keys to a new home in her hand." An independent mortgage broker who dedicates their time solely to home loans may be your fastest option. Be sure to do your research on average close times before committing to a lender.
Get Started If you are ready to start you path toward a home purchase or refinance, we would love to help you make it a reality.
Taking your next step today will bring you closer toward the reality of homeownership.
If you are thinking about buying or refinancing a home in the future, talking to a licensed, professional mortgage broker is your first step. They can give you an honest assessment of where you currently stand, and suggest some steps to bring your financial goals to fruition. At O Capital Group, we are happy to provide a no cost phone consultation. Call (602) 492-8930 today to connect with someone who can help you learn more. Or, get started on your own through Blink - a safe, secure online loan application you can use on your own time.
Keep Us Posted On Your Journey Have you worked with either a bank or mortgage broker? What was your experience? We'd love to learn from your journey! Leave us a comment below.
At O Capital Group, we make home loans easy!
Call today: (602) 492-8930
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters