If you’re looking for a mortgage, you would know that there are two types of professionals to choose from: a mortgage banker and a mortgage broker. It’s important to know the difference between a broker and a banker so you can better understand their roles. A mortgage banker is someone who works with financial institutions directly in order to offer loans to home buyers looking for credit options. On the other hand, a mortgage broker is an independent professional who works on behalf of clients by finding lenders willing to provide real estate financing. These two careers have very different roles when it comes down to helping people finance their homes! To learn more about what each type of professional does, continue reading this article.
What does a mortgage broker do?
A mortgage broker shops around with multiple lenders in order to get the lowest interest rates, terms, and fees for your individual situation (the lender’s lending criteria). When working with a broker, it’s important to understand that they are not employees of a financial institution. Moreover, a mortgage broker is not required to work with only one lender. They can shop around and get you the best possible rates from many different lenders. This is an advantage for borrowers in today’s market where there are over 100 mortgage providers available to US residents.
Brokers typically charge a fee (typically between .50% – .75%) of the total loan amount. Not only this, but they will also use this fee to pay for advertising and other administrative costs.
What does a mortgage banker do?
A mortgage banker is similar to a mortgage broker. But the difference between the two entities is that a banker will originate, fund, and service their customer’s loans while brokers simply help clients find them. They are also called direct lenders. Because they lend their money to home buyers directly rather than going through another lender like a mortgage broker or correspondent.
A mortgage banker can be licensed in all 50 U.S states as well. While mortgage brokers are only able to work within the state that they reside in. So, that means that mortgage bankers are able to service mortgage loans anywhere in the United States.
The differences between a mortgage broker and a mortgage banker
The main difference between a mortgage banker and a mortgage broker is that the mortgage banker has much more control over their own business. They have to put up all of their cash, take on all risks, and get to keep 100% of the profits they make. And, there is no middle man in this option.
Also, a mortgage banker typically represents one financial institution while a broker may represent many different banks or institutions. With a broker, you can get loans from multiple places and that means you will have someone to act on your behalf. Find the best rates and opportunities for you, fill in all of the paperwork, communicate with everyone involved, then close the transaction.
One of the other major differences between them is that mortgage brokers do not have their own capital. They just place mortgages with lenders while getting paid for doing so. On the other hand, mortgage bankers have their own capital. They do not get a salary from mortgage brokers to place mortgages with lenders.
Pros and Cons of a Mortgage Broker
- Will find you the best loan for your needs with the lowest interest rate.
- Search multiple lenders at once so all of the paperwork goes directly from them to those specific lenders to minimize unnecessary hassle.
- By having multiple lenders working with them, they are able to offer their clients many different options.
- While most brokers do not charge fees. Some do take out an origination fee which is paid by taking money off the top of what it would have been as if they did not work with a broker (the fee varies.)
- Individual lender rules can get confusing. It is through all of that paperwork going back and forth between many people. Sometimes things may get lost, overlooked, or get delayed.
Pros and Cons of a Mortgage Banker
- Can help you get the best possible rate by being able to compare rates and lenders in one place.
- As they are a part of bigger companies, they have the greater buying power to offer lower fees and interest rates.
- They do not actually originate the loan themselves. So you may end up dealing with multiple people throughout this process which can lead to miscommunication and delays.
With so many mortgage brokers and bankers to choose from, it can be hard to know which one is the best fit for you. Fortunately, we have done research on both types of professionals in order to help you find the right solution for your needs. We have also reviewed some pros and cons of each type of mortgage professional as well as what they offer that makes them different. If you have any more questions after reading this article, or want guidance on how to get started with a home loan application process please feel free to reach out. Our experts are always happy to answer your questions about mortgages.