Understanding the Difference between Mortgage Bankers and Mortgage Brokers

The terms are sometimes (mistakenly) used interchangeably, but there is a vast difference between a mortgage banker and a mortgage broker. Depending on what type of home loan and service you want, there are pro’s and cons to working with either a banker or a broker.

Mortgage Banker

The loan officer at your banking institution is a mortgage banker. The bank they are employed with originates all the loans they have to offer. The mortgage banker will use the information on your loan application to determine which loan fits your needs and will fund the loan depending upon credit approval. The lending institution sets the fee that the loan officer will charge the borrower.

Mortgage Brokers

Mortgage Brokers are licensed independent contractors who are not tied to one lending institution. They charge a fee to match loans with borrowers. Mortgage brokers have access to many lenders and will shop around for the loan that best meets your needs. The broker will submit your loan application to several of these lenders. Once it’s determined which lender will fund the loan, the broker will work with that lender until the loan is funded. The loan processing fee mortgage brokers are allowed to charge can be any amount they want.

Which One to Work with

When deciding on whether to work with a mortgage broker or a mortgage banker there are many factors to consider. Most people will want to work with whoever will quote them the lowest rate. Mortgage brokers will argue that they can beat a bank’s best rate since their operating fees are lower. However, as brokers are allowed to charge any amount for their loan processing fee, some have been accused of price gouging. Going with a banker can offer the security of knowing that the lending institution is tightly regulated, and has a bigger reputation to uphold. But, borrowers may feel limited with a banker since the bank can only provide their own loan products.

Especially for the credit-challenged borrowers, a mortgage broker can locate loan products that don’t have stringent credit minimums, a service that a banker cannot provide. The downside to finding these types of loans is the lender may not be local. These lenders may not understand regional housing issues which may affect the timeliness of your loan closing. The banker at your lending institution has an understanding of your local housing market, and may be the better choice if your move is time sensitive.

Getting the Loan

Both banker and broker must provide you with a Good Faith Estimate (GFE), an itemized list of fees associated with processing your loan, within 3 business days of applying for a loan. Quotes made on the GFE must be accurate, as the lender will be on the hook for any significant excesses. The GFE is designed to allow borrowers to comparison shop and is not a commitment to obtaining the loan quoted. Informal estimate worksheets will not protect you against low-ball quotes the lender may use to get you to commit, only later to charge a higher fee. Ask for the GFE by name when deciding to work with either a banker or a broker.

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