Selecting your mortgage lender is one of the biggest decisions you'll make when buying your home. You want a loan representative you're comfortable with personally, but it's also helpful to know what type of lender different loan officers work for: specifically, bank or broker. Banks and brokers follow different sets of regulations and guidelines. Banks close and fund your loan internally while a broker negotiates with a lender on your behalf. Mortgage banks and full-service banks also differ. Mortgage banks don't service your loan after closing. They still fund the loan internally, but sell it to a larger bank after closing.
Banks Provide Greater Certainty
If you get your mortgage through a bank, you can lock in your rate and know that your approval carries greater weight. Since a broker will shop your loan to several different lenders, sometimes even changing lenders days before closing, the lender does not have the same commitment to you as a borrower. If the market or details of your approval change during the buying process, your broker approval may not stand up. But if a loan officer at a bank signs an approval letter, the bank has strong incentive to get the loan done.
Brokers Are More Nimble
The flip side of this scenario, however, is that if things go wrong with the transaction, in the event the underwriter doesn't approve of the appraisal or the house doesn't pass a building inspection, the broker can quickly move the loan file to another lender. Brokers also have the ability to shop multiple lenders to get you the best interest rate available. Banks, for all the advantages of having in-house processing, underwriting and closing, sometimes get bogged down with the process. In a low-rate environment, most big banks were taking between 60 and 90 days from loan application to closing. Brokers can usually close loans within 30 days.
Any lender, whether a bank or a broker, is required to provide you with a Good Faith Estimate within three days of receiving your loan application. While this document lists all the fees you need to pay, a broker GFE also lists the profit the broker is receiving from the end lender. This amount is not a charge to the borrower. A bank doesn't have to show its profit on the GFE. If you're comparing costs from a bank and from a broker, compare only your rate and your fees. Don't worry about what the broker's making on the loan. The banker is probably making about the same; it's just not disclosed.
Determine Your Priorities
A broker may be able to get you a lower rate, but a bank offers more stability. With a bank, you'll know when your rate is locked and have the assurance of an underwriting commitment. If you know that you need to close your loan within 30 days, a broker would be a good option, but so would a mortgage bank. They offer the advantage of fast closings, but since they fund the loan internally, they can also lock you in and approve you early in the process.
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