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Mortgage broker vs. mortgage banker

By William Bronchick | Published: Oct 14, 2009 | 4 Comments

Many consumers assume that "mortgage companies" are banks that lend their own money. In fact, a company that you deal with may be either a mortgage banker or a mortgage broker.

A mortgage banker is a direct lender; it lends you its own money, although it often sells the loan to the secondary market. Mortgage bankers (also known as "direct lenders") sometimes retain servicing rights as well.

A mortgage broker is a middleman; he does the loan shopping and analysis for the borrower and puts the lender and borrower together. Many of the lenders through which the broker finds loans do not deal directly with the public (hence the expression, "wholesale lender").

Using a mortgage banker can save the fees of a middleman and can make the loan process easier. A mortgage banker can give you direct loan approval, whereas a broker gives you information second-hand. However, many mortgage banks are limited in what they can offer, which is essentially their own product. In addition, if you present your loan application in a poor light, you've already made a bad impression. I am not suggesting you lie or mislead a lender, but understand that presenting a loan to a lender is like presenting your taxes to the IRS; there are many ways to do it, all of which are valid and legal. Using a mortgage broker allows you to present a loan application to a different lender in a different light (and you are a "fresh" face).

A mortgage broker charges a fee for his service, but has access to a wide variety of loan programs. He also may have knowledge of how to present your loan application to different lenders for approval. Some mortgage bankers also broker loans. As an investor it is wise to have both a mortgage broker and a mortgage banker on your team.

Choosing a Lender

Choosing a lender that you want to work with involves several factors, not the least of which is an open mind. You need a lender that can bend the rules a little when you need it and get the job done on a deadline. You need a lender that is large enough to have pull, but small enough to give you personal attention. And, most of all, you need a lender that can deliver what it promises.

  1. Length of time in business

    Since the mortgage brokering business is not highly regulated in most states, there are a lot of "fly-by-night" operations. Bad news travels faster than good news in business, so bad mortgage brokers don't last too long. Look for a company that has been in business for a few years. Check out the company's history with your local title="Better Business Bureau">Better Business Bureau. If mortgage brokers are licensed with your state, check to see if any complaints or investigations were made against them. Also, ask for referrals from other investors and real estate agents.

  2. Company size

    A company that is too big can be problematic because of high employee turnaround. Also, the proverbial "buck" gets passed around a lot. If you are dealing with a mortgage broker, it is often a one-person operation. Dealing with a one-man operation may be good in terms of communication if he or she is a "go-getter." On the other hand, the individual may be hard to get a hold of, since he or she is answering the phone all day.

    A small to mid-sized company is a good bet. You will be able to get the boss on the phone, but he or she will have a good support staff to handle the minor details. Also, a mid-sized company may have access to more wholesale lenders than a one-person company.

  3. Experience in investment properties

    It is important to deal with a mortgage broker or banker that has experience with investor loans. Owner-occupant loans are entirely different than investor loans. And, it is important that the broker or lender you are dealing with has a number of different programs. It is often the case that you find out a particular loan program won't work, in which case you need to switch lenders (or loan programs) in a heartbeat to meet a funding deadline.

Comments

By Carl Ashton,  Mon Dec 14 2009, 13:31
Yes a small to mid-sized company is a good bet. You will be able to get the boss on the phone but we do everything in office here in Naples, so we have a good support staff to handle the minor details.

To ease your mind here are some tips!

We look for these Items

A 620 + Beacon Score
2 Years Verifiable employment
29% Income ratio
41% Debt Ratio
2 Years tax returns that correspond to the income
Sales Contract.
This loan I can close most buyers with 100% USDA or FHA 3.5% Financing in Suburban and rural areas in 5-7 days.

Seller consessions and Gifts take a little longer.

Other types of credit and loans we have to work on and work with the situation we can assist you in getting to a 620 score sometimes in as little as two days, verifying income through other sources such as small business owners option is a CPA's review of financial statements and Co signers for those that cant make the debt ratio's.

25 months out of Bankruptcy and letters of explanation and alot of me begging my Executives you can buy a home with a 620+ Beacon.

How much you put down is really not viable anymore except to lower the debt and income ratios to get a loan.
By Charles Dailey,  Sun May 30 2010, 19:36
This article should really cover mortgage brokers vs. banks vs. non-bank lenders. Non bank lenders comprised 41% of market share int he 4th quarter of 2009 and they don't operate as "mortgage bankers" are described in this article. They use their own funds and typically underwrite their own loans on a delegated basis for multiple end investors or loan purchasers. In this regard, they are almost 1/2 broker and 1/2 bank.
By Trevor Curran,  Tue Jun 19 2012, 10:30
Great blog William! I've been a proud Local Mortgage Banker for 22+years and I'm always thrilled at the high level of service we "smaller" local companies can deliver to our clients, whether they are purchasing a home or refinancing one.

As to the concept of mortgage brokers "presenting' the loan application: there's a new concept in 2012 called "First Look." When Lenders see multiple inquiries on a credit report, they may want to know if they got the "First Look" at the Borrower's loan application. If not the "First Look" then a Lender may have a problem approving that loan because the question begs asking, "What was wrong with this loan application when it went to the first Lender(s)?" More about that on my Trulia blog: http://www.trulia.com/blog/tcurranmortgage/2012/05/first_look_shopping_for_a_mortgage_can_lead_to_a_denial

Trevor Curran NMLS #40140
By Brian Smith,  Thu Nov 15 2012, 06:41
Thanks for providing this useful information. Lots of people do not know that, some even think that mortgage brokers and mortgage bankers are the same. I think that it's better to deal with direct lenders, dealing directly is better then through middlemen, that's my opinion. It's very important to choose a right lender in case you have decided to take out a mortgage. If you will get a great deal depends on a person you work with, that's why it's important to make a right choice and make sure that it's a reputable person.

Brian from http://paydaydesk.com

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