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Mortgage Bankers vs. Mortgage Brokers
It used to be that when you applied for a mortgage, it was assumed you
would go to the local bank where you keep your savings and checking
accounts. Today, there is a wide range of choices. You also can apply with
a mortgage broker, credit union, professional or trade associations that
you belong to, the financial services firm that manages your mutual fund
investment account, state and regional housing agencies, a private home
financing company or even the seller.
There's a lot of money to be made by the companies that provide or find
mortgages for home buyers, not only on the interest, but also on closing
costs and other fees.
With so many possibilities, where do you start? Basically, you can
approach a mortgage banker or lender directly, or you can go to a mortgage
broker.
Mortgage Banker
The mortgage banker is the lender; the one making the loan directly. As
Steve O'Connor of the Mortgage Bankers Association of America puts it: Why
not go directly to the source?
Even if you use a broker as the middleman, it's the lender who makes the
ultimate credit decision, said O'Connor, the association's senior director
of residential finance. "And it can be cheaper, and perhaps faster, if you
go to the source of the goods," he said.
A mortgage banker will present you with only that lender's program of
mortgages, so you need to speak with several lenders to do comparative
shopping. You can look at the real estate section of your local newspaper
to get an overview of lenders in your area and their rates.
Mortgage Broker
A mortgage broker serves as a matchmaker between the home buyer and the
lender. The broker draws from a pool of lenders to find the right match.
"The whole thing about a broker is choice," explains Neill Fendly, a
Phoenix, Ariz., broker who is vice president of the National Association
of Mortgage Brokers. "The broker has access to the products of hundreds of
lenders, not just one lender's programs."
In scanning the mortgage market, both nationally and regionally, Fendly
says, a broker knows a lender's specialty. The broker can identify what
lender might fit a borrower's special needs, such as the first-time home
buyer.
The broker does everything the lender would do -- checks your credit and
work record, arranges for title search and hires the property appraiser --
but, once all of this information is compiled, the broker selects a
mortgage lender that will most likely accept your application based on
your financial data and personal information. In some offices, the
mortgage brokers also are lenders.
Tip
While you may rely on the expertise of the mortgage broker, it is wise to
make sure you are given options. Have the broker present several programs
that meet your needs from different lenders.
How to Check on Reputation
As money-lending institutions, all mortgage bankers are subject to
regulation. You can check on how the industry is regulated in your state
by contacting either the state's department of banking or division of real
estate. You can check there for any licensing requirements, and check if
the particular lender is in good professional standing. The Library of
Congress has an index of state and local government web sites.
Not all states require mortgage brokers to be licensed, so you will have
to check with your state government. The local Better Business Bureau is
another place to check whether there have been any complaints about the
mortgage banker or broker.
Then, there are the professional organizations. "You can call your local
Association of Mortgage Brokers and find out if the broker is a member,"
says Fendly. The association is a nonprofit organization with a code of
ethics and business practices that applies to any broker who wants to be a
member. There is a section of the association's web site where you can
search for a member broker in your area.
Tip
Whether you choose a mortgage banker or broker, it's a good idea to ask
friends and relatives, especially those who have recently gone through the
process, to recommend a mortgage professional. When you meet with the
mortgage brokers or lenders, you should explain your desires and concerns
about becoming a homeowner, and then listen to how eager they are to work
with you. After all, no mortgage lender makes money by turning you down.
Bankrate.com
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