Who has the best mortgages: brokers or bankers? As is usual with such questions, the answer is a resounding "It depends." But understanding the advantages and disadvantages of using each (or both) could help you get a seriously sweet deal.
Brokers vs. Bankers: The Main Differences
Direct lenders do business by maintaining branches and staffing them with retail loan officers, loan processors and underwriters. The loan officers work directly with clients and may be paid a salary, a commission or a combination. Other mortgage lenders prefer to operate as wholesalers. They get their clients from mortgage brokers who are paid a commission by the lender or the borrower. For wholesale lenders, brokers function as their sales force.
Pros and Cons of Working with a Broker
There are two key advantages of working with a broker:
- They commonly have relationships with multiple lenders, dozens of them in fact. That means they know the sorts of borrowers, homes and risks different lenders prefer, and may have access to more programs than a bank would.
- They may be able to find a lower interest rate because they can compare programs from many wholesale lenders.
The two most common complaints about brokers are:
- They may be more expensive, adding an extra layer to the process.
- They have less control over the process and less access to information than an employee working directly for a lender.
Pros and Cons of Working with a Banker
Mortgage bankers may offer these advantages:
- They can have more efficient processes and operate on larger scales that allow them to provide lower interest rates.
- There are fewer layers between the borrower and the underwriter. Loan officers may have better access to information and be in a better position to expedite a loan.
But you need to be prepared for some possible downsides:
- Mortgage bankers, especially those working for larger institutions, often operate in a more conservative arena. They may be less-equipped to deal with "oddball" requests.
- Mortgage bankers can only sell their own products. If the best mortgage for you is a program they don't have, they are unlikely to recommend it.
The good news is, you don't have to decide early on whether to go the broker or banker route. It's perfectly normal to work with both while you're establishing your needs and exploring their offerings. Indeed, many experts (including those at the Federal Trade Commission) recommend starting out contacting multiple (commonly three or four) brokers and banks.
You don't have to pound a lot of pavement or burn up the phone lines to do this – LendingTree partners include many bankers and brokers, all competing with each other for your business. You can get custom quotes by completing one simple form.
Alternatively, you can compare real-time offers from brokers and bankers using LoanExplorer by LendingTree. Input your information at the top of the page, and then scroll through the offers that appear (you can sort them by APR, lender name, or other factors.) Each offer has a link to more details. Begin with the headline information on each offer: interest rate, points and lock-in fees. Then drill down further, establishing closing costs and fees, prepayment penalties and so on. You should soon build a comprehensive picture of each loan.
Shop Around to Save Serious Money
In January 2015, federal regulator the Consumer Financial Protection Board (CFPB) published research about the benefits of shopping around for the best mortgages. It found "a borrower taking out a 30-year fixed rate conventional loan could get rates that vary by more than half a percent." That may not sound much, but the CFPB went on to calculate what that sort of difference could mean. It reckoned that a 4.5 percent rate would cost roughly $60 more a month on a $100,000 30-year fixed-rate mortgage than a 4.0 percent rate. And, in addition to saving about $3,500 in lower monthly payments over the first five years, choosing the lower rate would also see you pay down the principal debt by $1,400 more over that period.
And yet the CFPB found 47 percent of mortgage borrowers don't compare lenders at all. Most spend more time shopping around for good deals on laptops, gadgets and appliances than they do on mortgages. And that can be an expensive mistake.