The process of securing a home mortgage is surely one of life’s most complex and mysterious endeavors.
But, because so many homeowners rely on this process to purchase their homes, it’s important to understand some of its subtleties.
When you set out to buy a new house, securing your financing is a critical first step. Our clients often ask whether they should use their regular bank or a mortgage broker for their financing.
Although the right answer depends on the individual and their goals, it helps to understand the difference between these two types of lending institutions.
What is a Mortgage Broker?
A mortgage broker is essentially a middleman between you and a collection of mortgage lenders. Just like a bank, a broker can help you obtain financing for your new home. However, a few subtle – but important – differences exist between the two.
Brokers provide the benefit of having access to a number of different lenders and their individual loan programs. This enables them to find the interest rate and terms that best meet your needs.
Because they have established relationships with their lenders, they can sometimes negotiate better rates or lower fees. And, although it may cost a bit more, brokers are sometimes able to secure a loan for when your bank has turned you down.
Of course, you may encounter a few disadvantages of working with a broker as well. The mortgage broker’s fees are paid by the lenders, based on your loan terms. Consequently, you may not be presented with the best deal on the first pass.
Be sure to talk to two or three different brokers, so you can identify the best deals available.
How Are Brokers and Banks Different?
Your local bank or credit union is a great place to start when you’re looking for financing. These institutions offer several advantages as compared to working with a broker.
Banks and credit unions typically have dedicated mortgage specialists on staff to assist you. They may offer perks such as paying for your appraisal fee or providing a free checking account when you secure your financing through them. Also, they may offer lower closing costs, home equity lines of credit and other advantageous financial arrangements.
The primary disadvantage of working with a bank is that it’s much harder to obtain a loan approval, especially if you don’t have exceptional credit. Banks typically have a higher standard for qualification and, even if you’ve been an account holder for decades, you may still be turned down.
Another disadvantage is that the bank will have a limited number of loan programs to offer. To shop for the best rate, you’ll have to talk to several banks to compare.
The Bottom Line
When the time comes, friends, family and even total strangers will want to weigh in your decision to work with a mortgage broker or a bank.
Our best advice is to talk with a few different loan officers and brokers, to learn more about their processes, and find one who is a good fit for you. Start this process several months before you’re ready to buy, because waiting until the last minute can force buyers into hasty – and sometimes ill-advised – decisions.
Politely but firmly decline any offers to prequalify you during this preliminary vetting process, as each time a bank or broker runs your credit report, your scores can decline slightly. If you allow several lenders to begin the prequalification process, it can be detrimental to your final loan terms.
Wait until you’ve narrowed your choices down to the top two or three, then set them loose on finding you the best deal for your new home!
The Edie Israel Team has the advantage of having worked with the finest banks and mortgage brokers in southern California. Contact us today if you have questions about the lending process, or if you need further guidance in securing a home mortgage for your upcoming purchase.