You’re on a mission to achieve your home financing goals. Maybe you’re looking to buy your first home or you’ve been a homeowner for some years now and are looking to refinance your mortgage. Your parents advised you to talk to your bank. A friend gave you a referral to a mortgage broker, but you’ve heard some not so good things about mortgage brokers. You’ve also heard the term mortgage lender, what’s that all about? So now you’re faced with the question of how/who to choose to work with, and find yourself a bit lost. If this sounds like you, you’re in luck! Keep reading for the info you need to answer your questions!
The Differences: Mortgage banker, mortgage broker, or bank?
The Good Ol’ Bank
Many homeowners look to their bank when they’re interested in getting a mortgage, and it’s not a bad place to start! After all, you already work with them for your other financial service needs, so they already have access to many of your important financial documents. Although often the most familiar and trusted option, if you talk to homeowners that tried to get a mortgage with their bank, some might mention a few bumps they experienced:
- Many banks don’t have access to a wide variety of programs, which can be tricky for those that don’t fit into the cookie cutter mold. Some people may have trouble qualifying for these typical programs, and if you’re trying to get creative with financing, it might prove to be too challenging with a bank.
- Speed. They’re bigger, more established, with more processes and workflows and red tape. They can take a while to close a transaction. If you have a need for speed, which is important in the sometimes-painful home loan process, dragging it out can be, well… a drag.
Mortgage brokers – The word that sends a shiver down your spine, but why?
You’ve probably heard this term A LOT some years back, and they got blamed for A LOT – pretty much the entire housing crash of 2007 and the downfall of the economy. But it’s 2016 people! Times have changed, laws have changed and things are looking up! Not all mortgage brokers are good or bad, and the same is true for banks as well.
Mortgage broker defined (by Investopedia.com): An intermediary who brings mortgage borrowers (homeowners) and mortgage lenders together, but does not use its own funds to originate mortgages. A mortgage broker gathers paperwork from a borrower, and passes that paperwork along to a mortgage lender for underwriting and approval.
In a nutshell, the middleman. Or if you prefer, the matchmaker.
Pros to working with a mortgage broker:
- Options – Because they’re the middleman, chances are they have access to a wide variety of programs.
- Personal service – Often these are mom and pop shops, so if you want to give them a call or stop in for a chat, you easily could.
- Experience – Their mortgage business is what they do and likely all they do, so chances are they’re pretty well-versed.
Cons to working with a mortgage broker:
- Price –Because they’re the middleman, they need to make their commission as well. This could translate to a more costly mortgage transaction.
- Communication – Once your mortgage broker matches you up with a lender, they’re out of the picture for the rest of the home loan process for the most part, so you may have some challenges connecting with those that are processing, underwriting and funding your loan.
- Oversight – Just make sure you know the person really well. If it’s a referral from a trusted source, great! They likely don’t have a big company with strict processes watching what they’re doing – it’s just them.
- Licensing – Your mortgage broker is required to have a license in the state they’re doing business. So if you live in California, but want to buy or refinance a property in Arizona, they might not be able to help if they aren’t licensed in Arizona.
Mortgage banker aka mortgage lender aka direct lender
Yes, three different terms that mean pretty much the same thing. Mortgage bankers fund loans, and then once funded will sell them in the secondary market to investors or agencies such as Fannie Mae and Freddie Mac. They borrow the capital needed to fund the loans, and then repay the money when the loans are sold – think of it as a big credit card that you’re sure to pay off at the end of the month. (The jargon term is the warehouse line). There’s one “thing” though – there are Good Ol’ Banks which are also mortgage bankers because they in turn sell loans on the secondary market.
Benefits of working with a direct lender:
- Speed – Since operations is entirely in-house – from processing to underwriting to funding, they can often close loans very quickly.
- Licensing – many large lenders have licensing nationwide, so they can help clients all over. So if you’re looking at properties out-of-state, they can likely help!
- Flexibility – as the direct lender, they can be a bit more flexible since they set their own program guidelines, enabling them to make the decision on whether or not to proceed with a mortgage.
- Reputation – for the larger direct lenders, you can look them up online to find reviews from previous clients
- Options – often times large lenders have a decent mortgage program offering so you can find the right mortgage for your lifestyle.
- Communication preferences – lenders like OneTrust Home Loans offer communication options – you can work with a mortgage loan originator in your local area, or you can choose to work with someone completely virtually via email/online and phone.
Other factors to consider!
Price – We haven’t talked too much about this yet, because often times the interest rates are the interest rates as determined by the market and the mortgage program/terms. Go ahead and rate shop a few different companies, but as you’ve learned, there is a lot more than simply price to consider!
Customer Service – Do you want to work with someone is knowledgeable and likeable? A company that has a great reputation? Well you should! The home loan process definitely requires a mortgage professional with experience that has great communication and customer service skills.
- Check out the company on Yelp, the BBB and more!
- Review the company’s mission statement
- Ask the Mortgage Loan Originator these questions
Alright, so after all of that info we shared about exploring your options, I hope you’ll give us a call! We believe in educating our clients, and also believe that we’re the best out there to help them reach their home financing goals! Why wait? Let’s chat!