I have heard so many negative stories and myths about Mortgage Brokers. This bad stigma that has been spread about brokers is very intriguing. Typically when you talk to a seasoned Realtors they will say just the opposite. Normally what you will hear from a Realtor is use a mortgage broker. I wanted to discuss some of the differences between a bank and a mortgage broker in this article.
Banks
You will find that most banks providing mortgage loans work with only good credit. This has been the case for years. Also with banks there is more red tape to get a loan done than with a mortgage broker. This is why most Realtors use a broker. Mortgage brokers have the ability the package loans better. In other words they know how to get the loan done so the loan can be sold on what is called the secondary market. Some banks don’t sell their loans, so they are extremely picky with how they underwrite loans that they portfolio. Don’t get me wrong, banks sell their loans on the secondary market also. Bottom line, banks are just pickier on their underwriting criteria. One advantage of banks is their underwriting fees are typically less, but not by much. This difference usually ranges between $300 to $500 dollars in cost to you. In some cases the banks fees are higher than brokers. This cost usually means the difference of getting approved or denied. So my question would be, is it worth the extra cost to have the loan go smoothly? I would have to say yes. Another disadvantage of Banks is if your loan runs into problems because the underwriter does not like something, you are stuck. A bank cannot broker the loan somewhere else to get a second opinion if they run into issues. This is the single biggest issue with Banks.

Brokers
I have found that most broker shops have the tendency to be more knowledgeable about loans. I believe the reason is Mortgage Broker’s are more motivated to get loans done properly because they make good  money per loan. Money motivates anyone. Loan officers with banks make less on their loans, so I believe this promotes high turnover along with a lack of proper training. Also if a broker runs into issues typically they can repackage the loan and send it to another participating wholesale lender. These lenders range from big banks to small banks. In the world of underwriting every underwriter might view a file differently. This is the HUGE advantage of using a broker. There is no bigger disappointment than being told no on your dream house. So I recommend that you use a reputable mortgage broker in your area. Don’t get me wrong, there are some real bad mortgage brokers out there. So make sure you are working with a seasoned mortgage broker.

In regards to the differences in process, there really is not much difference. The underwriting guidelines for FHA and Conventional loans are pretty standard across the board for banks and Brokers. The main difference is flexibility to fix issues. As mentioned you can see that a Mortgage Broker might have more flexibility to get loans done and shop for better interest rates on your behalf.

Author: Mike Clover

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