Whether it's better to work with a mortgage broker or get a home loan directly from a bank depends on your financial situation and your preferences. For example, if you might have trouble qualifying for a mortgage or value convenience, a mortgage broker could be worthwhile. On the other hand, working with a bank might make more sense if you are comfortable crunching numbers and want to feel more in control of the homebuying process.
What is the difference between a mortgage broker and a bank?
Working with a mortgage broker vs. a bank is like working with a travel agent vs. booking a trip on your own. It might be less hassle on your end to work with a professional, but there can be tradeoffs for that convenience.
Banks are one type of direct lender — when you're getting a mortgage, the bank is directly lending you the money to buy a home. Other types of direct lenders include credit unions and online lenders specializing in mortgages. There are also specialty lenders that focus on specific types of home buyers, such as military service members.
When you shop for a home loan with a bank or other mortgage lender, you're doing the legwork of figuring out whether that lender is right for you. So chances are, you'll find yourself setting up a spreadsheet or at least making a list to keep track of rates, fees and other considerations.
A mortgage broker serves as an intermediary between you and direct lenders, which include banks. After discussing your needs, mortgage brokers take care of most of the rest. They reach out to their contacts at direct lenders and come back to you with loan options that fit your criteria. The broker then works with you to figure out which loan best suits your circumstances and continues to facilitate the transaction through closing.
🤓Nerdy Tip
Some mortgage lenders don't work directly with borrowers, so for access you'd have to go through a mortgage broker. On the flip side, some lenders won't work with mortgage brokers. Neither path ensures you're seeing every possible loan — and that's probably okay. Whether you're working with a broker or doing your own research, you really just need a few solid options to choose from. » MORE: How to get a mortgage
Pros of using a mortgage broker
There are several advantages to using a mortgage broker versus a bank. Doing the research and finding a mortgage lender on your own can match some of the benefits of working with a broker. However, a mortgage broker may have access to more resources.
Help with prep
You can start working with a mortgage broker reasonably early in the homebuying process. Along with answering your questions about getting a home loan, a mortgage broker can help you gather all the documentation and info you'll need to apply for a mortgage.
Access to various loans
A bank's loan officer can only present you with home loan products the bank offers. A mortgage broker, on the other hand, can help you find and apply for multiple kinds of home loans. If you're looking for a type of mortgage that's less common, working with a broker can give you a shortcut straight to the relevant lenders.
Customized assistance
Suppose you're someone who might not qualify for a home loan, or you have circumstances that require more explanation (like gaps in employment or a thin credit file). In that case, a mortgage broker may be able to help you find lenders that are willing to work with you. Regardless of your situation, a broker will meet with you (in person or virtually) to go over and compare your loan options. Afterward, they can help you make an informed decision. This can be valuable even if you’re someone who wouldn’t have any trouble getting a mortgage on your own.
Convenience
Getting a mortgage is a time-intensive process. Even after doing all the due diligence to find the right bank for you, the application and loan closing process are intense, with lots of back-and-forth and requests for documents. A mortgage broker will generally handle the paperwork and lender-wrangling on your behalf, saving you time and stress.
🤓Nerdy Tip
Mortgage brokers must disclose their fees upfront, and they legally can’t steer clients toward certain lenders just to increase their compensation. If you’re comparing a loan with lender-paid vs. borrower-paid broker fees, review the numbers carefully so you're clear on the broker's fee. Pros of working with a bank
Working with a mortgage broker isn't for everyone. If you feel comfortable talking to loan officers and want to be in the driver's seat, you may prefer working directly with a bank.
Direct connection
If you're working with a loan officer at a bank, you're working with a bank employee. They should be able to address any issues right away. On the other hand, when you're working with a mortgage broker, they may not always be able to influence what goes on with the lender since they don't work for it.
Potential discounts
While it may feel easiest to go with your existing bank when you're ready to buy a home, it's always a good idea to shop around to find the best mortgage rates. But do make your bank one of the options you shop. Many banks offer homebuying discounts to existing customers who use other products or services like credit cards, checking, or savings accounts. For example, your bank might offer a discount on closing costs or a waiver on origination fees, which could make a competitive loan an even better deal.
Lower fees
Working with a broker can add to the cost of your home loan. On average, mortgage brokers earn a flat fee equal to 1% to 2% of your total loan cost. If you pay this as the borrower, it may be part of your closing costs or rolled into the loan amount. The broker fee is often paid by the bank, though.
This route may seem less expensive, but your bank might build the broker’s fee into the cost of your loan. If you're paying the mortgage broker, they can’t receive additional compensation from the bank — either you pay or the bank does.
Fewer people to manage
You might be able to cut out a lot of the headaches of the loan process by working with a mortgage broker, but you'll still have to do some research to find a mortgage broker in the first place. You'll want a mortgage broker who works well with you and also with your buyer's agent. If the relationship doesn't go as expected, you can change brokers — but then you're back to square one.
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