If you’re shopping around for a home loan, you will probably have already encountered the two main avenues for getting a mortgage. Most people get a mortgage in one of two ways. They either approach a bank for their loan, or they work with a mortgage broker. Brokers and bankers both provide mortgage services, but they operate very differently.
A broker is an independent mortgage expert who works with individual clients to find them the best mortgage product available. They confer with multiple lending partners to secure deals on home loans and match their client with a mortgage that works with their financial goals and home ownership timeline.
Bankers work for their bank – their goal is simply to extend loans to borrowers and make the bank money.
When trying to decide whether to work with a broker or a banker for your mortgage, here are some key points to consider.
One of the biggest differences between brokers and bankers is the loan products that they can access. Bankers can only use the products their bank offers, and must adhere to their bank’s “Overlays”, or guidelines concerning borrower financials. This limits their ability to offer mortgages to borrowers with unique financial situations, specific types of loan assistance (such as FHA or VA) or developing credit.
Flexibility
Brokers, on the other hand, are free to approach whatever lenders they choose, and work with them to formulate a loan that suits their client. The wholesale lenders that brokers work don’t have to abide by Overlays – they can underwrite the loan based on the needs of the borrower. A broker, therefore, can return to their client with an array of different loan options, each with their own specific benefits, and fine-tune them in accordance with their client’s needs.
If a banker is a restaurant with a fixed menu, a broker is a personal chef. Sure, they both offer you choices, but only one is truly made to order.
Licensing
Both bankers and brokers require licenses to do business. A bankers license means they can register to do business in all 50 states. A broker is required to register independently for each state, and undergo rigorous training in that state’s mortgage rules and regulations. This means that a broker registered in multiple states has achieved a high level of education for each one, and can offer specific guidance for borrowers based on their knowledge of a given state’s proceedings.
Brokers are also required to pass a federally mandated exam known as the SAFE test. The exam covers a full range of mortgage knowledge and ensures that brokers are experts in process, laws, consumer protections, fair lending, and more. Bankers, on the other hand, are not required to take the SAFE test.
Because of their higher level of education, brokers are better able to walk their clients through the mortgage process and highlight state-specific steps and processes. If you want to be sure your mortgage is done right the first time, work with a broker.
Compensation
Brokers are typically paid by the lender upon closing. Some brokers are paid by the client, in which case their fee is added to the closing costs. Either way, they must be consistent in the rates they charge borrowers. Additionally, there are strict regulations detailing how much a broker can make – no broker can make over 3% of the home’s value from any given mortgage. They are also required to disclose this compensation up front, and are unable to change the rate they set after the fact.
Bankers are paid by their bank, and are not subject to the same transparency regulations as brokers are. This means that borrowers are in the dark about how much of their closing cost is going to their home, and how much is going to the banker.
Availability
One of the most important differences between brokers and bankers is their commitment to the borrower. Remember, a banker works for their bank – a broker works for their client. What this means is that your broker will be there for you whenever you need them. Most brokers will give you their personal cell phone number, their personal email, and carte blanche to contact them with your questions and concerns.
Bankers operate only during business hours, and typically work with several borrowers at a time. They operate on a volume model, and are limited in the amount of time they can spend with a given borrower.
Brokers on your schedule – bankers make you work on theirs.
Takeaways
Brokers and bankers can both get you a mortgage. The difference is in how quickly and easily you’ll get it, and in how well that mortgage suits your unique situation.
When compared to bankers, brokers offer:
- Specialized advice and expertise
- Greater ease of communication
- A more nuanced understanding of the mortgage industry
- The ability to simplify and expedite the process for their clients
- Answer any questions and address any concerns the client may have
- More options to the consumer, by enabling them to shop the market for the best price
- Accountability and competition among their providers
Don’t settle for less when it comes to buying your dream home. Contact a local mortgage broker today, and learn why brokers really are better.
