Let’s start by saying there are quality mortgage professionals, and bums, working under every business model. Working with a broker or bank neither assures or prevents you will get the right answers, have greater access to your loan officer or find someone higher ethics. Again, there are bad actors and pros working in both worlds, being a broker doesn’t make you more professional, knowledgeable or customer service oriented.
The majority of loans today are underwritten to the guidelines of Fannie Mae, Freddie Mac, FHA, VA or USDA. As a result, those loan programs and their qualifying guidelines will look much the same whether your loan is obtained through a broker or a bank. Even Jumbo loans are sold to a relatively small pool of investors and are underwritten to significantly similar guidelines.
The exception would be a bank who holds loans in “portfolio.” If you need something outside of the box, you may need to look for a portfolio bank that can do “make sense” loans without worrying about secondary market guidelines.
With that being said, here are good reasons to do business with brokers or with a bank.
Let’s start with the broker model:
PROS:
--Ability to shop among many lenders to get you the best terms.
--More stringent licensing than “bank” loan officers.
--Required by law to disclose all income from your transaction.
--Loan officers at a broker shop usually “eat what they kill” which gives them a greater incentive to ensure your satisfaction (hoping to generate repeat and referral business)
--Loan officers are usually compensated better at broker shops, making each deal more valuable to them
CONS:
--Requires two sets of disclosures (one from the broker, another from the lender). Creates additional hassle and often confusion when there are small (and not so small) discrepancies between the two.
--Must use the lenders third party appraisal management company with little to no control or recourse over a “bad” appraiser being assigned to your file.
--Only controls the origination and processing functions, relying on the lender for everything else.
Moving to banks:
PROS:
--All functions (origination, processing, underwriting, docs and funding) performed “in house”, allowing a greater level of control
--Often have their own appraisal department allowing a greater level of accountability and quality control over the appraisers in their system. (All lenders must have a firewall between sales and appraisal functions).
--Rates are most often determined by the bank, not the loan officer, and typically published online or in the branch at a minimum.
CONS:
--Banks are limited to the product on hand and cannot shop when your square peg loan doesn’t fit neatly into their round hole.
--Loan officers often paid less per transaction expecting to make it up in volume from branch foot traffic and bank marketing collateral. Each deal provides less income and the focus is on volume.
--Loan officers only required to “register” with the NMLS and are exempt from much of the testing that non-bank mortgage originators must undergo.
--While banks sometimes offer great terms to “buy the market” in the short run, they rarely offer the best terms over the long haul.
Your question ignores a 3rd group, mortgage banks. A mortgage bank is not a depository institution like Chase or Wells Fargo, but a mortgage company that funds loans in their own names and sells them in the secondary market. This gives them many of the benefits of a bank while functioning similarly to a mortgage broker in that they can sell your loan to any lender they have a relationship with. This can allow them to shop your loan for the best rate and/or guidelines.
In a perfect world, a mortgage bank with a large list of approved correspondent investors would be your best option. In reality, you can get a great deal from a quality mortgage originator working under any business structure.
My advice would be to look online or seek the referral of a friend or family member. I would start with a mortgage broker as they are likely to have the greatest number of options for you. Sit down with them and get fully qualified for your mortgage. This means you will supply all of your income and asset documentation and have them run your credit.
Now you should have a good idea of the loan program you are interested in and any potential trouble spots in your file. Armed with this information, call a bank or two, or simply check online to see if there are better terms available.
If you have the time and energy, contact as many as you’d like. Just remember, these loans all get sold into the same secondary markets. The terms you are offered should fall in a fairly narrow range. If one lender is significantly lower in rates or fees than everyone else you talk to, that should be a big red flag to you. Most every reputable lender has some online reputation: Google, Zillow, Yelp, BBB and others should be able to confirm if they have been known to bait and switch.
The bottom line is it sounds like you’re willing to do some homework. If so, there’s a great deal out there for you whether it comes from a bank or a broker. Best of Luck!
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