If you're buying a home, chances are you'll need a mortgage, but did you know there are big differences between banks and mortgage brokers?
Banks and Credit Unions
The loan officers at a credit union, bank or other lending institution are employees who process and sell mortgages and other loans originated by that particular lending institution. They usually have a wide variety of loans to choose from
When going through a bank, you complete a loan application and then an officer assists you in finding a home loan that best suits your needs. If your personal credit and other criteria are approved, the officer then moves forward to process the purchase
Mortgage brokers often work as freelance agents and are paid a fee to bring together lenders and borrowers. Most have access to lots of lenders, including some that will fund deals that traditional banks won’t touch
Mortgage brokers essentially work as scouts. They find and evaluate home buyers as well as analyze their credit history to determine which lender best fits their needs. The broker submits the home buyer's application to one or more lenders with the purpose of selling it and works with the lender until the loan closes. A good mortgage broker can usually find a lender for just about any type of credit
The mortgage broker working to secure your loan earns a fee for the transaction, and the better deal they put together for a lender, the more they are paid. So don’t be too anxious in disclosing to a broker the interest rate you are willing to accept. Instead let them tell you what terms they can secure. Also be sure to shop around to make sure the terms are reasonable
Many of the mortgage companies that advertise online are mortgage brokers
What difference does it make?
Commercial properties or atypical loans might be easier to secure through a mortgage broker. A mortgage broker may also be able to find a lender for you in another part of the country if a local lender turns you down, due to problem credit, for instance
However, working with an out-of-town lender can sometimes cause significant delays in getting the loan approved. In many cases, it’s because distant lenders aren’t familiar with properties in other areas, and they will delay closing until they feel their questions and concerns about a home have been addressed
Using a local bank then may get your loan approved more quickly. Their staff generally understands the specifics of local properties. In addition, if you go through your own bank, there is usually less paperwork involved, because they already have your information on file
You basically want to make your choice for a lender based on the best loan terms you can find. Ask questions about how long the process is expected to take. Also, if you have any friends, family members or colleagues who recently purchased a home, ask them if they have a reputable lender or broker they can refer you to
Obtain your own credit reports
Order your credit reports and scores from all three of the major credit reporting agencies before visiting a bank or broker. Personal copies of current reports should provide enough details for them to give you an opinion of the types of loans they can offer you
The lender you decide on will also access your credit files, but taking your personal copies to the initial interview avoids multiple credit pulls that can lower your scores. Requesting your own credit reports does not affect your scores.