When shopping around for a mortgage, one of the first decisions you will face is whether to work with a bank or a mortgage broker. While both options offer loans for purchasing a home, they each have their own unique benefits and drawbacks. Understanding the differences between the two can help you choose the best option for your specific needs and circumstances.
In this article, we touch upon the following:
- What is the main difference between a bank and a mortgage broker
- The pros and cons of working with a bank
- The pros and cons of working with a mortgage broker
- How to get the best deal on your mortgage
DIFFERENCE BETWEEN BANK AND BROKER
The main difference between a bank and a mortgage broker when it comes to getting a mortgage is that a bank is a financial institution that offers mortgage products as a direct lender to its customers, while a mortgage broker is a third-party intermediary that connects borrowers with lenders. Banks typically have their own underwriting standards and may offer a limited selection of mortgage products, whereas mortgage brokers work with a variety of lenders and can provide access to a wider range of mortgage options.
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So, what are the pros and cons of each option when shopping around for a mortgage?
BANKS
Pros:
- Fewer fees: Banks do not have to charge an origination fee like other lenders
- Concessions: Some banks may be able to offer relationship discounts, or closing cost credits which can help to reduce your closing costs
- Familiarity: Since most people have accounts with a bank, they're familiar with how they operate, which can make the process less intimidating.
Cons:
- Fewer options: Banks typically offer fewer mortgage options, which can make it challenging to find a product that aligns with your unique financial situation.
- Rigidity: Banks often have more stringent requirements, which means it can be more challenging to qualify for a loan, particularly if you have a less-than-perfect credit score.
- Stringent underwriting: Banks have many due diligence requirements that sometimes can get tedious and stressful, drawing out the length of the process
Banks have a robust reputation and are often seen as the safer and more secure option. On the other hand, mortgage brokers specialize in the business of mortgages, which means they can often offer more competitive rates and terms, which is something that might be appealing to borrowers.
MORTGAGE BROKERS
Pros:
- More options: Mortgage brokers have more options than banks, so you're more likely to find a product that fits your unique financial situation.
- Lender flexibility: Mortgage brokers are often more flexible with lenders, which can vary between traditional banks but also investors and portfolio lenders, which are like private banks.
- Incentive: Mortgage brokers have more urgency to get the deal closed, therefore being more hands-on with your process.
Cons:
- Higher fees: Mortgage brokers often charge higher fees than banks, which can add up and result in a more expensive loan overall.
EXPERT TIP:
Sometimes the mortgage broker can collect their fee from the lender instead of the borrower so don’t forget to ask the mortgage broker who is paying their fee and how much will it be.
Ultimately, the decision to use a bank or mortgage broker when shopping around for a mortgage depends on your individual needs, financial situation, and comfort level. If you're looking for a trusted institution with a solid reputation, a bank might be the way to go. However, if you're looking for more flexibility, more options, and potential cost savings, a mortgage broker might be the better option.
Before making any decisions, be sure to check out my Ultimate Buyer’s Guide. It walks you through from start to finish on how to buy a home in New York City. It's crucial to do your research, compare rates and terms, and ask plenty of questions. You should also seek advice from a trusted financial advisor and other professionals who can help you navigate the process and make an informed decision.
EXPERT TIP: So how do you get the best deal on a mortgage?
- Shop around: Reach out to multiple lenders, including a mortgage broker, your local small bank, and credit union.
- Choose locally: Your loan officer should be based locally and has completed a deal recently similar to yours.
- Work with someone you get along with: The worst thing is to work with someone that doesn’t respond to you and at the end of the day delay your closing or deny your application completely.
The decision to use a bank or mortgage broker when shopping around for a mortgage is a personal one. Banks offer stability and convenience, while mortgage brokers provide a personalized touch and access to a wider range of lenders. Ultimately, the decision of which option to choose will depend on your individual circumstances and priorities. However, regardless of which route you decide to take, the most important thing is to ensure that you work with a trusted and experienced team to help you navigate the complex process of buying a home. That's where Team Undivided comes in. Our expert team of agents will work with you every step of the way to make your dream home a reality. Contact us today to learn more about how we can help you achieve your homeownership goals.
