I work for a mortgage broker but I am going to give you an insight into the difference between a bank and a mortgage broker.
A bank usually has different loan programs and rates for all of those programs. Many banks have a set rate for each particular program. A few banks allow their loan officers to deviate a little on the rates. Each bank has their set of "guidelines or rules" that the loan must conform to. If they don't they usually turn the loan down. If it is a smaller, friendlier bank sometimes they will make exceptions.
A mortgage broker usually represents 10 - 40 different banks and lenders. So instead of one rate or one set of guidelines for a 30 year rate they may have 20 different rates and 20 different sets of criteria for that 30 year fixed rate. That one of the differences in a mortgage broker. The mortgage broker can flip your loan to a different bank or lender if it is turned down by one bank or lender. The reason they can do this sometimes is the next lender or bank may have a little different guideline or may not require as much documentation.
Another difference is the mortgage broker is paid by the bank or lender. (Think about it as the mortgage broker gets the loan at a "wholesale price") The rate and the cost may be less expensive than what the bank could give you. The mortgage broker decides how much to mark it up. I used to love when a customer would call up and say Standard Federal Bank will do 6% and charge me $1280 in closing costs. I could usually do the loan for 5.875 or $900 in closings costs. Sure I didn't make much money, but I was able to get another client a loan cheaper than what the bank could do. Volume made up for it. Mortgage brokers have the ability to change the closing costs and the rate according to how much they want to make. I believe most of the time you should be able to get a better rate or closing costs from a mortgage broker versus a bank.
BUT there are exceptions always. Some relocation companies have hammered out deals with a couple of banks for their relocation people. Great rates sometimes. If you are relocating ask your move coordinator about it. Some banks provide financing for condo projects. In order to help sell projects some banks give lower than normal rates. Always check out the sponsoring bank's rates. And some local banks just have great rates. But you should compare costs and rates, it will save you money in the long run.
Whether it is a mortgage broker or a bank always get a Good Faith Estimate and a Truth in Lending. A Good Faith Estimate will detail out the costs of the loan. Compare the Good Faith Estimates and the Truth in lending documents to the other lenders or the other banks Good Faith and Truth in Lending. If one has a fee the other doesn't pick up the phone and ask for an explanation. Remember mortgage brokers can add or subtract fees that the banks may or may not have. So a mortgage broker could possibly have more fees than a bank. Usually no two banks, lenders, or mortgage brokers will have the same fee or closing costs. You need to be able to compare apples to oranges in costs.
APR or Annual Percentage Rate on the Truth in Lending form is how you compare apples to oranges, or apples to apples. APR IS NOT THE INTEREST RATE YOU ARE GETTING, but it is important. APR is the interest rate with the costs of the loan figured in. So if Bank X is showing an APR of 7.95% and Bank Z is showing a APR of 7.4% and the rates are the same. Then you want to go with bank Z because the closing costs are less.
Your local bank will always be easier to see somebody face to face about your loan. But a loan from a mortgage broker will always have a customer service phone line and a website. Sometimes you may even get a loan from a mortgage broker that is your local bank. My company represents Flagstar Bank, Chase Manhattan Bank, and Wells Fargo just to name a few of the Local Detroit area banks and lenders.
I hope all of this helped you understand mortgages, mortgage brokers, and how to compare costs. For more on Michigan mortgages go to my website www.RussRavary.com or email me with questions at info@RussRavary.com
Have a Great Day!
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My Month of December quote:
~ Mark Twain”
Russ Ravary
"helping make your move easier"
your local Metro Detroit Realtor helping clients like you sell and buy homes through out the entire Metro Detroit suburbs. I love showing and selling Oakland County and Livingston County Lake front homes too.
Hi Russ: Thank you for your even-handed approach. I'm a broker but am able to see both sides. Generally, a broker can get their client a better rate but, these days, the public often wants to go with a bank as trust and being there tomorrow are important. Plus, banks can often close loans quicker. The bottom line in my opinion is to find someone to work with where you can build a realtionship. That's what we're all after. Have a great day!
Paul
Russ, this is very good. Most people do not understand the Broker side of the business especially the part that we get rates at wholesale and not retail and that we can compare rates and programs with different lenders with one credit pull. But if someone is turned down by a bank they would have to apply some where else and get their credit pulled again.
Hey Russ,
Do you know why APR fails consumers? (HINT: think expected hold time )
I bought my first house last year. I've been late twice (blaming it on the ecomony). I asked my mortgage company (who also holds the loan) if I can modify my loan. They won't even return my phone calls! I haven't been late since February, by the way.
A friend referred me to her cousin, a mortgage broker. He wants to help me (streamline) "refi" my FHA loan, and said he could get me a 4.75% rate. My question is ... what's in it for this guy? And ... I'm only saving about $160/month (and my rate is going from 6.5 to 4.75).
Something doesn't "feel" right. Help! I'm a novice.
I take it the lates were just a few days late not 30 days late. If the payments were over 30 days late then you won't be able to refinance. FHA or not. If you are saving $160 a month what are you waiting for. What are the costs to do the loan? You have to look also at what it is going to cost you. Dont' get sucked in and pay a lot of points or huge fees to do this. Get a second opinion from another lender and compare Good Faith estimates and Truth in Lending documents. and go with the best deal. Try a bank too.
I am just beginning to research purchasing a new home. My first mortgage was with the bank, but I'm sure I can get a better deal from a broker. A concern I have however is because of todays economy, I'm wondering what would happen if the institution my broker deals with goes bankrupt? Could their creditors potentially go after their assets (ie my new house)? What kind of protection do I have against something like that occuring?
I am asking this simply because I know my bank is not going to go bankrupt, on the other hand I have no idea who a broker will be dealing with or what kind of financial position they are in.
Ok, buying my 1st home out of state my husband has a new job and we are relocating should I be looking for a broker in my hometown or in the state I am relocationg