The Difference Between Banks and Mortgage Brokers

The difference between a mortgage broker and a bank loan officer can be confusing if you've never worked with either one before. Though they both aim to get you into a house with a mortgage, they are not the same.

Let me walk you through the difference:

Mortgage Brokers Mortgage brokers are professionals who are paid a fee to bring together lenders and borrowers. They usually have access to dozens of different lenders. It helps to think of mortgage brokers as agents. They will evaluate your credit situation to determine which lender is the best fit for your needs. The broker submits your application to one or more lenders in order to sell it, and she works with the chosen lender until the loan closes. Brokers specialize in customizing the mortgage to your unique needs. They can often find a lender who will make loans to people that a bank refuses, such as those with problem credit.

They make their money by getting 1 to 1.5 percent of the mortgage, and their fee is paid by the lender. Thus, it does not necessarily cost you more, as brokers often work with the wholesale departments at banks, which allows you to end up paying the same with a reputable mortgage broker as you would dealing directly with the bank. Besides a great rate, your mortgage broker can get you that coveted preapproval letter, which turbocharges you into a dream buyer.

How to Find a Mortgage Broker As with your real estate agent, the best way to find a mortgage broker is through references or here on Trulia. Talk to your friends. If you've found your agent already, ask him or her who they recommend. In fact, while you're interviewing a potential agent, ask them who they've worked with and respected.

What to Look for-and Expect When you get the mortgage broker on the phone, which should be easy―or move on to the next―ask for the names of banks and lenders with whom she has relationships. Find out how long she has been doing this. Ask if she is specially trained and licensed. You want someone with at least five years of experience.
Banks Banks offer an opportunity to work directly with the entity that will be offering you the loan. Loan officers at banks or credit unions are employees who work to sell and process mortgages and other loansoriginated by their employer. They often have a wide variety of loan types to draw from, but all loans originate from their one bank. So a loan officer at Wells Fargo, for instance, will sell mortgages created by Wells Fargo. He won't be offering you a loan from Citibank or SunBank. The loan officer takes your application and works to find a home loan that suits your needs.

Walk into your local bank and speak face-to-face with its loan officer. Using a local bank can sometimes be a plus. The staff generally understands the specifics of local properties, whereas a distant lender, including online banks, may not. And there's still something to be said for making personal contact when trying to convince someone to lend you money in today's market. If your personal credit is approved, the officer moves forward to process the purchase. Though a loan officer may not get a fee out of the deal like a mortgage broker will, there are likely to be other fees related to the transaction that enrich the bank for closing your deal.
Shop Around for a Loan Don't expect to find the best loan the first time you speak to either a broker or a bank. It pays to shop around and engage both brokers and banks in search of ideal loan terms. You don't have to sign an exclusivity agreement with anyone when you're looking to land a mortgage, but you can certainly let those you speak to know that you're shopping around and applying for more than one loan. You never know who will say yes first or charge the least amount of fees or points. You want to gather as many options as possible and see which numbers make the most sense to you-and which lender will come through for you and your needs.

The difference between accepting a bank's mortgage program directly or working with a broker could come down to dollars and cents. You might find, for example, that a broker may suggest a loan that charges you a point whereas a bank will not-saving you thousands. However, on the flip side, a broker might have access to a loan program that has a lower interest rate and thus saves you tens of thousands over the lifetime of the loan.

Make your choice of a lender based on the best loan terms you can find. Ask questions about expected time frame, points, and extra fees. No two mortgage packages will be the same. Comparison shop just as you would when you buy a car.

But a word of caution about shopping around. Don't agree to pay for any fees up front before you have made a decision on who is getting your loan business. Lenders should not ask you to pay for any costs until you have agreed to apply for their loan program.

-Michael Corbett

Michael Corbett, TruliaMichael Corbett, TruliaMichael Corbett is Trulia's real estate and lifestyle expert. He is also the host of EXTRA's Mansions and Millionaires on NBC. In addition to his regular segments on ABC's The View and Fox News, he is a national best selling author with three critically acclaimed real estate books:Find It, Fix It, FLIP IT!; Ready, Set, SOLD! and Before You BUY! His years of experience in buying, renovating, and selling homes have made him a sought-after nationally recognized real estate expert.