The decision to choose a bank or a mortgage broker for a home loan depends on a number of factors. There are advantages and disadvantages to both. You must consider more than simply the type of loan you want, particularly if you have long-term financial goals or plans to raise a family in a house. Make sure to weigh the pros and cons prior to accepting a loan offer.
Brick and mortar banking institutions provide a number of benefits for mortgage financing, particularly if you are an existing customer with the bank. For example, at some local credit unions, you might find bargain basement mortgage rates or fee-free mortgage programs simply because you are already a customer. In addition, banks might have more stringent credit criteria programs, meaning that you can be assured you are not entering into a risky subprime mortgage.
One of the advantages of using a bank for a home loan -- strict lending criteria -- might be a disadvantage if you don't have a strong or lengthy credit history. Strict criteria could prevent you from obtaining financing through a local bank if you don't meet its standards. You might find a low level of expertise at a bank as well, as some loan officers are trained primarily in other skills, while a mortgage broker spends his entire day working on mortgage applications.
Mortgage Brokers: Pros
The greatest advantage of using a mortgage company for your home financing is that mortgage brokers are highly skilled at matching home loan products with their clients. These professionals spend long periods of time sifting through different programs and rates to help meet their customers' needs. In addition, loan brokers are more willing than banks to negotiate with you. At the end of the day, brokers understand that their livelihood depends on your business, so you can negotiate with this in mind.
Mortgage Brokers: Cons
Many mortgage brokers receive payment from the lender, but others charge sizable fees to the borrower, according to the Realtor.com website. This is especially true if there are credit issues or other problems with the borrower. In addition, mortgage brokers often develop relationships with particular lenders and will work to do business with these lenders -- particularly lenders than pay the highest commissions. This can work against you if a particular lender does not offer the best financing terms. Keep these points in mind when negotiating with a mortgage broker.
Based in Eugene, Ore., Duncan Jenkins has been writing finance-related articles since 2008. His specialties include personal finance advice, mortgage/equity loans and credit management. Jenkins obtained his bachelor's degree in English from Clark University.