The Bank or Mortgage Broker. Which Should I Choose?

 

In the world of mortgage banking there are two established ways of securing mortgage financing. We’ve all heard these names bandied about and sometimes used interchangeably. The virtues are extolled for one or the other, usually swayed toward the interests of the party at hand. It seems like there is not much of a difference. Superficially, that is correct, but there are differences under the skin.

 

The most prevalent misconception is “I’m going to the bank because they will not sell my loan.” This is a fallacy 99% of the time. The bank may retain the servicing rights to collect the payments but will sell the loan in almost every instance. We’ve all heard of Fannie Mae and Freddie Mac. They are the primary purchasers of conventional loans. Ginnie Mae is the buyer for FHA. Larger loans that meet the “jumbo” criteria will go to private investment pools. In honesty banks do retain some loans but these are almost always loans that have a 20% or greater equity cushion, and retained by smaller banks. Unless you are making a large down payment on a very large loan this “playing field” is fairly level.

 

Another misconception is that banks will have lower rates than a mortgage broker. This statement is entirely false. A mortgage broker can compete with a bank’s rates because the bank gives the broker discounted or wholesale rates. This rate is lower than what the bank offers to its retail customers. Why you may ask? It’s because a broker absorbs the overhead costs. Brokers pay their own rent, supplies, employees, and all other overhead costs. Banks save money by not having there outlays and their loan production costs are lowered.

In turn the broker will offer a retail rate depending on the profit deemed necessary to pay overhead expenses.

 

There is something critical that a bank can do but a broker cannot do on its own. It is approving your loan. A bank approves files internally. A broker must send your files to a bank for approval. This issue is a “double edged sword.” If a bank denies your loan then you must begin the process all over again if you wish to continue. If you are dealing with a mortgage broker they have the option of submitting your loan to a different lender for approval.

 

As far as education is concerned, all brokers and mortgage originators that work for brokers, must take and pass a national and state test to acquire a license. They must also undergo fingerprinting and a criminal background check. This is a Federal requirement as per the recently adopted Secure and Fair Enforcement for Mortgage Licensing (S.A.F.E.) Act. A mortgage originator who works for a federally chartered bank is exempt from the testing, fingerprinting, and background check requirements as Congress left these checks up to the bank to perform as per their individual corporate policy.

 

All mortgage originators and mortgage brokers must also be licensed through the National Mortgage Licensing System (N.M.L.S.), and must have a unique license number as an identifier.

 

You will find professional and competent mortgage originators at both a bank or mortgage broker. The actually skill level will vary between individuals as with every occupation. With a smaller mortgage broker you may have one person handling your file from start to finish if that person possesses the skill set to do so. This is uncommon at a bank because of the origination platform they use. Jobs are more clearly defined so your file will pass from one person to another depending on their duties in the loan process. Truthfully, this can be An asset or a detriment, defending on the individual borrowers tastes and the complexity of the loan.

 

Still can’t make up your mind? You can choose both! There are many mortgage banks that are a “banker / broker” hybrid. They have the ability to underwrite your loan, have mortgage originators who passed all national and state requirements, and the ability to broker your loan if it does not meet their internal guidelines.

 

I actually am both a banker and a broker!

 

I specialize in NJ conventional financing, conventional renovation loans, FHA and NJ FHA203K financing. I personally handle all files from start to finish.

Feel free to contact me with any questions you may have.

Mark Robinson

732-207-8434

mark@njfhapro.com

 

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