Should I go with a mortgage broker or my bank?

Definition:  Broker
A broker "buys" loans from a variety of mortgage lenders at a wholesale cost, and sells the loan to another mortgage banker, receiving a commission on the sale.

Definition:  Banker
Here, getting a loan from your banker means loans you get at your local bank. A banker usually, but not always, has their own money to lend out and makes a profit by collecting loan fees and the interest the customer pays on the loan, called servicing fees. However, most banks package up loans in packets of $1,000,000 dollars or more and sells them to the secondary market, making a commission on the sale. Why? What are interest rates right now, 7 or 8%? The stock market and mututal funds are averaging 15% returns or more. Why have millions of dollars tied up in low return investments? See also: Why did my mortgage company sell my loan?

Banks
No matter what people will tell you, your best deals usually are at a bank. I mean the same building where you get your checking and savings accounts, not a mortgage company with the same name as your local bank. This is because there aren't a lot of add-on fees and middlemen who touch your loan and get paid for it. Plus, these guys do a volume business and therefore can cut corners on costs. The employees generally don't get a commission, just an hourly rate, so they aren't looking for ways to charge you extra. (No, that doesn't happen, does it? Yeah, and I have a bridge to sell you, too.) They also may lend out their own money, making money through the servicing of a loan, not in charging origination fees.

One of the reasons that a bank is cheaper: Banks don't give out loans to anyone without 'A' credit, job stability, long-time residence and good income. If you fit their criteria, giving you a loan is practically automatic and follows the same procedure every single time, without extra work or effort on the part of the bank.

As we stated, the banks make money by processing a cookie cutter type of loan. If you don't fit the 'A' profile in job, credit, and income, forget it: why should the loan officer do any extra work if and not be paid for it? Your loan gets pitched in the reject pile automatically. It's not that you're not a good loan risk, but look at it from the loan officer's point of view.

In the banks that do pay commission, a loan may pay a flat $100 commission for every loan. Therefore, why would a loan officer work on a loan that takes the time of two easy loans? He/she would make $100 less for the same work. It's just common sense for them to pitch out a difficult loan.

And the banks that don't pay commission? Are you kidding? Why deal with the stress if you you can just stamp 'reject' on the file? Those rejected files? This is where the mortgage broker comes into play.

Brokers
In the mortgage broker world, you usually pay higher fees/interest rate for getting your loan through. The sharp loan officer can take a look at your application and know in advance how much effort it will be to get your loan through the system. Not every broker handles difficult loans, most prefer handling 'A' clients. Again, it's easier, like the guys working in the banks: they'd rather make a lower commission for less hassle and go for volume.

So why would an 'A' client go to a broker? The reasons are numerous: clients may not have tried the bank, the broker actually has a better deal (it happens) , either in interest or fees, or their realtor recommends them. Usually the broker, if they're good and have been in the business a while, has a regular clientele consisting of real estate agents or referrals by past satisfied customers. Buying a house is very stressful; a competant, hand-holding professional may be a service worth paying for. Keep this is mind, it's one of the things you should consider for when shopping for a loan.

Loan Officers
Now we'll give you the average profile of a loan officer working for a mortgage broker. Knowing this may give you an insight on the guy that has your life savings in his/her hands. (Maybe you'll understand the process better.) The average loan officer:

• has no college degree, may never have finished high school.
• Makes about 1500/month income (about $500/loan) income for which they typically work like dogs
• Spends their day getting rejected while looking for business: visiting real estate offices, cold calling customers, going to banks looking for rejected loans, sending out mailers
• Gets viciously yelled at by borrowers, title companies, realtors, builders, underwriters, his/her boss (for not bring in enough business). This is part of the day, no matter how good a loan officer is.

Loan Officers are are heavily involved in one of the biggest purchases a person makes in a lifetime, and everything about the deal looms large and frightening for the borrower. Mild mannered people turn in to screaming monsters if anything goes wrong, and there are so many things that can hold up a loan. It's not a fun business, it's stressful, hard work, and it's a good day if no one gets upset with the loan officer. Have a heart for these guys. And also realize that most of them don't respond to yelling, hysterics or threats. It's nothing new to them and will only get you an increase in loan fees as compensation for your abuse or get you terrible service. They're people, too.

If you have less than perfect credit or a tough situation, the loan officer specializing in these non-conforming loans knows he or she will work harder for this deal and will either:

a) hope you will be impressed enough to send many referrals in the future, or
b) charge you more money.

Guess which one they will usually pick? The loan officer sees an opportunity to make a little extra income. Remember the real costs involved in doing a loan.

Making the decision
You should keep in mind that if you can't get an 'A' loan, the loan officer may only be able to find a loan for you which is certainly higher in interest rates, and possibly in fees, too. There are special loans for non-conforming situations.

Especially with tough or non-conforming loans, the loan officer may charge extra points to get the loan through. How much extra is their call (and yours; you can always walk away.) However, overcharging isn't the norm: Loan officers with clients who feel they've been overcharged don't get repeat business, the real money in this industry. Unfortunately, you still need to be careful about the guy who will shaft you. Desperate people can get taken because they'll do anything to get a loan.

If you think you're being overcharged, shop. Most brokers have access to the same products (meaning they can usually find and buy the same loans as other brokers), so call around and compare interest rates and fees, especially if you're not an 'A' loan. Don't believe the loan officer who tells you that you won't get a loan anywhere else. By shopping around, you can usually reveal who's trying to gouge you. Once you find the interest rate and fees you can live with, fill out an application at the broker's office, and lock the terms of the loan.

Conclusion
A broker is your only option when:

• you have less than perfect credit
• are self employed (and can't prove your income)
• just switched professions
• or have a high debt load.

A bank is the best option if:

• you have top notch credit
• steady job/work history
• low debt loads
• are self-employed, but your last 2 years of income tax returns easily prove your income.

Keep in mind: a broker may have competitve rates/fees as compared to a bank, so don't necessarily rule out a broker even if you'd qualify for a bank loan.

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