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Mortgage Broker vs. Mortgage Bank or Local Bank: What’s the difference?

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Should you choose a mortgage broker versus a lender for your home loan? What’s the benefit of picking a mortgage broker versus your bank for a refinance or purchase? The answer depends on your finances, how fast you need to close and which type of loan you need.

The different types of mortgage lenders

What is a mortgage bank?

A mortgage bank, also called a mortgage lender or even “lender” for short, is a financial institution with direct access to the money you need for your mortgage. Typically, the money comes from the company’s own bank account or from its investors.

How mortgage banks work

  • A lender can approve your loan application and provide money to you directly.
  • You’ll usually make your payments directly to the mortgage bank after your loan closing.
  • Mortgage banks only offer home loans — you won’t find options for checking accounts, credit cards or car loans.
  • Mortgage processors and underwriters work for the lender. Closing and funding of the loan is handled internally.
  • Documents can be uploaded to one central processing site.

What is a mortgage broker?

A mortgage broker has indirect access to the money for your home loan based on approved relationships with a number of different banks. A mortgage broker matches your finances with a mortgage bank that can fund your loan but doesn’t lend you the money directly.

How mortgage brokers work

  • The only paperwork in the broker’s name is your initial application.
  • You don’t typically find out which mortgage bank will fund your loan until you get your initial loan disclosures.
  • Processing may be done by an employee of the mortgage broker.
  •  The rest of the process — from underwriting to closing and funding — is completed by the mortgage bank.
  • A separate company may prepare loan disclosures or closing documents.

What is a retail bank?

Many national and local retail banks and credit unions offer mortgages at their branches. While you might think of your bank as the place you deposit your paycheck, there’s a good chance they also offer a variety of home loan products.

How banks work

  • The money for the mortgage is with the bank.
  • The bank can fund the loan from its mortgage banking department.
  • The bank approves your loan and provides the money to you directly.
  • You may even get a special discount on closing costs if you pay your mortgage payment from a bank checking account.

Pros and cons of each type of lender

Pros

A mortgage bank:

  • May offer special proprietary loan products or down payment assistance
  • Has decision-making authority for special circumstances
  • Approves and funds in-house, and can make exception approvals

A mortgage broker:

  • Has access to more banks and programs
  • Can switch you to a different bank or lender if your loan is denied
  • Can shop for the most competitive rates with different lenders on your behalf

A bank:

  • May offer you lower rates based on your deposit balances
  • Has decision-making authority for special circumstances based on your banking history
  • Processes, approves and funds the loan in-house

Cons

A mortgage bank:

  • Doesn’t offer any other financial products like checking or savings accounts
  • Can’t offer interest rate discounts based on your deposit balances because they don’t offer deposit accounts
  • Can’t switch you to a different lender if your loan is denied

A mortgage broker:

  • Relies on other lenders to make the final loan decision
  • Can’t make exception decisions for difficult loan applications
  • Doesn’t fund the loan, which may create delays in closing

A bank:

  • May not offer a wide variety of home loan products
  • Can’t switch you to another bank if your loan is denied
  • May set stricter minimum mortgage requirements that make loan approval more difficult

How to choose the right type of lender for your mortgage needs

Mortgage lender vs. bank

You may want to consider a mortgage lender versus a bank if:

  • You have bad credit or complicated income 
  • You need to have a final decision on a loan quickly

Mortgage broker vs. lender

You may want to consider a mortgage broker versus a lender if:

  • You’ve been denied at a mortgage lender or bank
  • You need non-QM lending because you don’t fit traditional lending guidelines

Mortgage broker vs. bank

You may want to consider a mortgage broker versus a bank if:

  • You’ve been denied at your bank or need a faster closing
  • You need an alternative loan product the bank doesn’t offer

Bank vs. mortgage broker and mortgage banker

You may want to consider a bank for your mortgage if:

  • You have excellent credit and large deposits with a bank that offers rate or closing cost discounts based on your business relationship
  • You need a first-time homebuyer down payment assistance program that is only offered through the bank
 

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