When you apply for a mortgage, you are most likely going to apply with one of these three types of mortgage lenders – banks, credit unions, and mortgage brokers. Each of the three are different from the others in some important ways.
Reasonably astute shoppers will probably do better dealing with a mortgage broker than with a lender or a credit union. Because mortgage brokers deal with multiple lenders, they can shop for the best terms available on any given day. In addition, they can find the lenders who specialize in various market niches that many other lenders avoid, such as loans to applicants with poor credit ratings.
A bank has only one set of underwriting guidelines and only as many home loan programs as they offer. With a bank you are either approved, declined or counter-offered on your mortgage application with them, unlike a mortgage broker who can send your loan to another lender if you are turned down/declined or not approved how you want to be approved.
A mortgage broker will have access to several lenders, who each have different mortgage programs. One of these programs could be the perfect fit for your financial situation. Also, unlike many banks and credit unions, a mortgage broker can offer Stated Income, No Ratio, No Doc, Pay Option ARMs, and several other mortgage programs.
Some borrowers have the misconception that mortgage brokers are middle-men. These borrowers falsely belive that they can save money by dealing directly with the banks or credit unions. The reality is that mortgage brokers usually offer better loan programs with lower rates, because loan brokers work with many lending institutions to find the best deal for the borrower. A bank or a credit union is just one of many lending institutions.
Mortgage brokers also have access to wholesale rates, which in turn is passed along to the borrower. They also have acces to lenders who do not have a retail side, which allows the borrower more financing options
Neighborhood retail banks usually offer only a few loan programs. If they do not have a perfect loan program for an applicant with a particular situation, rather than sending the applicant to another bank with the right mortgage program, bank loan officers would sell the next best loan that the bank has to offer, which may not be a good loan for the applicant at all.
One other major difference is that mortgage brokers must disclose all of their compensation to their borrowers. This includes any monies paid to them by the investor. Banks do not have this requirement.
Local banks and credit unions often offer attractive financing terms for Home Equity Lines of Credit. If you have a good relationship with a local bank or credit union and are in the market for a HELOC ask if you qualify for any special promotions.
If your credit is not very good, applying at bank after bank is a bad idea. Each of these institutions will have to pull your credit and analyze it. If you don't fit into one of their restrictive programs, they will simply turn you down and send you away empty-handed. A mortgage broker, on the other hand, will pull your credit once, and then begin his search for the best lending institution for your particular needs. You are much better off finding a mortgage broker you can trust and letting him work for you.
A disadvantage of using a credit union is that you may have to conduct business face to face. With technological advances in security on all aspects of communication, mortgage brokers can work in a virtual environment that utilizes state of the art data encryption for faxes, emails and all kinds of correspondence.
Mortgage brokers will have lower rates that banks or credit unions because they have access to the wholesale rates of numerous lenders. If you go to a bank or credit union you will pay the retail rate which is higher that what a mortgage broker could obtain.
Traditionally, banks and other lending institutions have distributed their own products. However as markets for mortgages have become more competitive, the role of the mortgage broker has become more popular. Today in most developed mortgage markets, mortgage brokers are the largest distributors of mortgage products for lenders.