What is a mortgage banker versus a mortgage broker?

written by Sarah Peterson
MORTGAGE EXPERT
12 · 11 · 20
Mortgage Lender

Both mortgage bankers and brokers can offer mortgages to potential homebuyers. So, how do these lenders differ?

The type of lender you decide to go with should not heavily influence the overall outcome in terms of the loan amount and interest rate given. But it will affect the underlying process.

Each entity operates in contrasting ways, from the initial application to the final stamp of approval and everything in between.

Understanding their differences will set expectations from the start, helping you find a lender that fits your specific situation and overall requirements.

Mortgage Bankers

A mortgage banker is able to secure the money needed for your mortgage and provide it to you directly. This type of lender is backed by a bank or group of investors who have explicit access to the amount of capital needed.

Mortgage banks can underwrite the loan and approve it themselves. Once the loan officially closes, you will probably start to make payments directly back to that particular bank.

Overall, every aspect of the loan is managed internally. You can view it as your one-stop-shop for a mortgage.

Advantages 

When using a mortgage banker, you are working with a licensed loan officer who is committed to selling mortgages and nothing else. They are experts in the field and can counsel you on the structure of your loan.

Additionally, everything is handled in-house, including mortgage processors, underwriters, and loan officers. You will not have to communicate with any other outside party. This will help to streamline the process, ensuring responsiveness and efficiency throughout every step.   

Disadvantages

Bigger banking institutions do not offer custom-tailored mortgages. They are working with a strict set of rules, and their loans usually have a one size fits all policy.

If your financial background is a bit rocky, your application may be denied, or you may be given a higher interest rate.

Mortgage Brokers

Mortgage brokers, on the other hand, have indirect access to the money that will be used for the loan. They have relationships with several banks and must secure the funds that way.

A broker will manage all of the processing duties. They will contact mortgage banks and retail banks in search of a quality loan and low-interest rate on behalf of the borrower.

The bank will then decide whether to accept the loan and under what terms. If approved, they will handle the underwriting, funding, closing, and any other tasks involving the loan. In certain cases, disclosures and closing forms may be outsourced to a separate company 

Advantages

When working with a mortgage broker, you will have access to several loan types through various lenders. This will allow you to sort through different offers and ultimately secure a personalized loan.

Disadvantages

Because there are several parties involved, communication can get complex.

Once the borrower is matched with a bank, the mortgage broker is officially out of the picture. You may find certain things falling through the cracks, as far as previously obtained documentation and authorization.

The continuous back-and-forth can be tedious.

The Key Differences

The main difference between a mortgage banker and a mortgage broker is how they secure the funds. This will affect how decisions are made and ultimately what gets approved.

Mortgage banks will offer conventional, straight-forward mortgages, while brokers offer a little more flexibility for nontraditional circumstances. 

The loan approval process is very time-consuming and time-sensitive, especially when an important deal is on the table. That’s why choosing a lender who can best serve your needs is critical.

Author

Sarah Peterson

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