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Whitney H. Hall's Blog

By Whitney H. Hall | Mortgage Broker
or Lender in Florida

BANKS, MORTGAGE BROKERS, AND DIRECT LENDERS


BANKS, MORTGAGE BROKERS, AND DIRECT LENDERS

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I HAVE BEEN ORIGINATING MORTGAGE LOANS FOR OVER 15 YEARS, and have been asked many times, "what’s the difference between banks, mortgage brokers, and direct lenders".  Here is a brief explanation of the differences in the three.

BANKS

rely on existing relationships they have with depositors.  When you walk into your bank you normally find an advertising offer for their interest rate and whatever promotion they are running at the time. So of course it’s only natural to turn to your bank for a mortgage loan.  However, banks have many different revenue streams.  They are in business to make money so be careful when you see "zero points" or "no closing costs".  They have to make money on your loan and these terms generally mean you will be paying a higher interest rate.  The biggest factor I would point out is that loan officers at a bank have very little input or contact with the underwriters.  The work flow is much slower and when things arise as they do from time to time and you need an answer yesterday, good luck.  Banks do a lot of good things in their communities and you can get a great deal at most banks. Just make sure you are comfortable from the beginning and confident in what you are being told. 

MORTGAGE BROKERS are sort of like independent insurance agents.  They act as middle men between you and several lenders that they represent.  While many advertise they have over 20 lenders to choose from, they are more than likely only using two or three of these on a regular basis.  Brokers have to make money on the loan so you will be charged either a broker fee or an origination fee.  Closing costs will generally be higher with a mortgage broker.  As a general rule brokers do have better communication with underwriters but still very little control over the workflow.  You are always getting second hand information.  A lot of brokers go to the same banks you could have gone to directly.  I have seen, and as a broker at one time, was able to arrange loans for borrowers that banks and direct lenders could not even think about doing.  That’s all changed with strong regulation that has eliminated loan programs such as "stated', "no-doc", and "no income no asset".  It’s a much more even playing field.  BTW, most brokers I know are very good at what they do, and most will bend over backwards to please you.  

DIRECT LENDERS focus on one thing, and that is mortgage loans.  The philosophy here is to do one thing and do it well.  I have recently come to work for a direct lender for the first time in my career, after four years at a bank and 11 years as a broker.  The difference is night and day on many levels.  Interest rates are so competitive these days that whether a bank, broker, or direct lender you will find minute variances in interest rate.  More often than not you will find the best rate with a direct lender.  Direct lenders have more control and say so from the beginning of the loan process and communication between your loan officer and the underwriter is literally a phone call away.  Decisions are made much faster and that is so important in today’s real estate environment.  While all charge underwriting fees and a few smaller fees for credit reports and appraisals, not all charge origination or points.  My company charges neither origination nor points. 

I guess you could say it all comes down to service.  There are many great loan officers at banks, brokers, and direct lenders, and they all want your business.  Shop between a few before making a decision, ask the right questions and get the answers in writing.  It’s still mainly "vanilla" in mortgage lending, although we are seeing guidelines loosen up a bit.  Rates are on the rise, and I don’t expect to see them hit the all time lows again that we’ve seen in recent weeks.

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