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Mortgage Broker, Lender or Bank – Which is Better?

Is there a Difference?

The short answer is Yes, there can be a huge difference.

But it’s probably not for the reasons you would think.

Interest rates are only one small part of the answer to the question of whether a mortgage broker, lender or bank is the best choice when trying to buy, or refinance a home.

Where the rubber meets the road, it’s about much more than rates and fees.  It’s also about the experience and expertise of the people responsible for making sure your loan process goes smoothly.

In this article, and in the video below below, we are going to discuss this in detail.

Josh and Scott Discuss Broker vs Banker

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You Get What You Pay For

Normally, when you hear the phrase “you get what you pay for”, it’s about the quality of the product or service you’re buying.

When we are talking about a mortgage broker, lender or bank, this phrase takes on a whole new meaning.

In this context, we are really talking about how a business finds customers, and what the cost of acquisition is for the opportunity to earn your business.

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Big box lenders that advertise on television and radio are investing hundreds of thousands, if not millions of dollars a year to earn your eyes and ears.

If you’ve heard of a lender, it’s because they spent a ton of money to make sure you know their name.

This business model is great for getting people to know your name, but it leaves little money to invest in experienced loan officers to help guide you through the process, and help you navigate through challenges during the loan process should (and when) they occur.

In contrast, if you’re reading this article now, it’s because at some point you went to Google and asked a question about home loan financing, and you found an article I’ve written about that subject.

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Sharing my personal experience and expertise as a veteran of the mortgage and real estate industry costs me no more than the time it takes to write about it.

Now you would think that bigger is better, at least that’s what the commercials would like you to think.  I am suggesting here that if you have to pay a celebrity to say your mortgage company’s name, you’re probably not investing in hiring experience professionals to work with you through the process.

I am painting with a very broad brush here, and I’m not saying that any of these business models are bad, or unprofessional.  They are just different.

By understanding the difference, I am hoping that you will have the ability to make a more informed and educated decision about which kind of company (or loan officer) you choose to do business with.

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Mortgage Broker

I want to be completely transparent here, I am a mortgage broker.  This is a choice I’ve made as a professional in the home loan financing business because it allows me to best serve the needs of the clients that choose to do business with me.

As a mortgage broker, I am a small business owner. I am an entrepreneur.  I also have the flexibility to match my clients with a mortgage lender that best suits their individual needs.

A mortgage broker depends more on the individual expertise and experience of a loan officer than companies that only want you to know their name.

A loan officer at a mortgage broker typically gets paid more for the work that they do, and they rely heavily on referrals from real estate agents and past clients for their business.

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In short, a loan officer at a mortgage broker earns their business one loan at a time.  If a mortgage broker is horrible, they typically will not be in business very long, or they will go work for a mortgage lender, or bank.

A mortgage broker does not have to hire compliance departments, attorneys, underwriters, funders and all of the other personnel required to run a big company,  the wholesale lender shares that cost across all of the loans given to them by mortgage brokers all over the Country.

You are almost always going to find your lowest rates and fees when using a mortgage broker.

Mortgage Lender

These companies are also known as a Direct Lender, or Mortgage Banker.

Mortgage lenders use credit lines to fund your loan, then sell the loan off on the secondary market so that they can use that money (on their credit lines) to lend to the next person.

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Selling loans on the secondary market is completely normal, and can happen when you’re using a mortgage broker or even a depository bank.

In my experience, you’re going to have a pretty good chance of working with an experienced loan officer when working with a small to medium sized mortgage lender.

High volume mortgage lenders are the ones that you see dumping obscene amounts of money into advertising, resulting in low paid “customer service” people being represented as loan officers.

The overwhelming majority of false approvals, or declined loans come from these high volume lenders with low paid, inexperience loan officers.

Another concern with a mortgage lender is that they typically offer fewer options than mortgage brokers.

The reason you have fewer options with a mortgage lender is that they need to hire underwriters that specialize in the products that they offer.  The more products that they offer, the more staff is required to support that products that might not be as popular as standard, traditional loan options.

Mortgage lenders also carry the burden of having a lot of overhead to keep up with the compliance requirements, and personnel to be able to process all of the loans received from their loan officers and retail branches.

Because a mortgage lender typically has much higher overhead than a mortgage broker, you will find that in most cases this translates into higher rates and fees to the customer.

Because of higher overhead, a mortgage lender will typically have higher rates and fees when compared to a mortgage broker.

Depository Bank

The best example of a depository bank is where you have your checking or savings account.  Depository banks rely on brand familiarity and the fact that you already use some of their products.

For a depository bank, their primary business focus in not home loans.  A home loan is an up-sell product for most of these companies.

Because depository banks rely on name recognition and their existing customer base to originate home loan business, you encounter the same potential lack of experience and expertise as high volume mortgage lenders.

With huge advertising budgets and massive overhead associated with running brick and mortar branches all over the Country, you will find that depository banks will have very similar rates and fees as you will find with mortgage lenders.

The Best Option

While there are definitely differences in cost and loan options between lenders, those costs can be amplified when working with an inexperienced or uninformed loan officer.  It doesn’t matter where that loan officer works.

You really need to consider the “type” of business model you want to support.  I know most people don’t think this way, but I think you should.  Do you want to do business with a company that thinks that advertising is more important than experience?

Or do you want to work with a small business that can only stay in business if they do a good job, over and over again?

The best option for getting a home loan is going to vary widely based on your individual scenario.  Unfortunately, most borrowers will not know that they made the wrong decision until it’s too late.

As Josh Lewis mentions in the video above, talk to more than one loan officer.  You can avoid most bad experiences, and identify the best fit for you by speaking to 3 different lenders.

If they all tell you the exact same thing, then you work with the person with which you have the best rapport, and had the best conversation with.

Need a Second Opinion?

You can catch me most days taking questions through live chat on the lower right corner of this article, or answering questions from other articles on this site.

Please feel free to ask any questions below, on chat, or by email.  This is a great opportunity for you to anonymously ask an experienced professional that has no financial interest in how how your question is answered.

About the Author

Scott Schang

A 20 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

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