Banker Or Broker?
How Do You Know Which Is Best?
You've found the house you want to buy, and it's your first home. Unless you happen to have either saved a lot of money or inherited a bundle, you will likely need a mortgage. Most home buyers have to finance real estate, which means a loan is inevitable. Unfortunately, there is no formula for knowing which type of lender is most appropriate for you. The choice is dependent upon your personal financial situation, the property you are interested in purchasing, and costs of borrowing money. It all varies and it is a good plan to compare prices and information before making a final decision.
Mortgage Brokers
There are a variety of places from which you can mortgage a piece of real estate. More than half of the loans made to purchase real estate in the US are made through mortgage brokers. The broker is the middleman between lenders and borrowers, bringing them together in order to secure financing. A mortgage broker works with a number of different lenders, so shop around since the products offered vary from broker to broker. In this type of lending arrangement, the fees can be paid by the buyer or they may be paid by the lender. In some arrangements, they both pay the fees as designated. If the loan is at "par" it means the fee is not paid by the buyer. The lender typically pays the yield-spread premiums which are disclosed at the closing of the real estate transaction. There is also a situation called "up-front" brokerage, which means that the mortgage broker is paid by the buyer to find the lowest interest rate and fees. When you see mortgage companies advertising online, you can be pretty sure they are mortgage brokers.
Pros And Cons/Bankers And Brokers
By the title alone, it is obvious that mortgage bankers work for a bank or several banks and they may or may not be licensed. Regardless, the loans they offer are bank loans, funded by the bank at bank rates. With this type of lender, the fees are not negotiable and they are determined by the bank. The selection of products is confined to what the bank offers. A loan officer at a bank, while not necessarily a mortgage banker, is able to help you with a mortgage loan as it applies to the bank you are dealing with, and will make available all of the products that particular bank offers. There is a difference between mortgage brokers and bank loan officers-notably that mortgage brokers are freelance agents while loan officers work within the confines of a particular bank.
There is also a difference in the type of service you may receive when it comes to dealing with a mortgage broker as opposed to a bank. A broker may be able to secure a loan for you from somewhere else in the country. However, there may not be anyone locally to help you out with questions and information. It all has to be done via internet and/or phone. An out-of-town lender may not have any concept of the needs of a homeowner in your part of the country and the common classifications for such things as heating, septic systems, and other home infrastructures in the area of are purchasing. This lack of understanding can slow a loan down to a crawl. A distant lender may hold up the closing until all of their questions are answered, and that can take some time. On the plus side, a mortgage broker can often secure a loan for someone the bank refuses or for properties that are unique.
The advantage to using a local bank includes staff who knows the area and the specifics of properties in that area. Sometimes the terms offered by your local bank are better than you may find with a broker and you have the added advantage of personal contact with your lender.
Something To Bear In Mind...
When you go for the initial interview for the loan, regardless whether it is a broker or a banker, take copies of your credit report with you. By doing so, you eliminate the possibility of lowering your credit score since every request for your credit files affects your score. The score is not affected if you request the information yourself.
