How to Choose Between a Mortgage Broker and Bank

On July 11, 2014, the CFPB issued supervisory and enforcement guidance entitled, "Policy Guidanceon Supervisory and Enforcement Considerations Relevant to Mortgage Brokers Transitioning toMini-Correspondent Lenders." The guidance addresses regulatory requirements applicable tomortgage brokers under the Real Estate Settlement Procedures Act (RESPA) and the Truth inLending Act (TILA).

A great majority of us apply for loans at some point in our lives. They could be for buying a house,car, property, education, or some sort of investment. The first and foremost thing one does whileapplying for a loan is to go to a bank. While some of us take this option, there are people who prefergoing through a mortgage broker. This is preferred by many for certain reasons. There are manyfactors to be considered while wanting to select either one of these two institutions, for which abank vs. mortgage broker comparison chart needs to be drafted for a better understanding. A briefof the same is given in the paragraphs below, which tells you how to choose between a mortgagebroker and bank, and the reasons for the same.

Mortgage Broker

In layman's language, a mortgage broker is a go-between or an agent between borrowers andlenders. He is the one who will lead you to the lenders. He will listen to your loan requirement andget the necessary paperwork and documentation done from you. Then, he will negotiate with thepeople who will lend you money and pass on all your details to them. He will then take their approvalfor the loan, and you will handed the funds in the lender's name. The broker will collect acommission from the lender for his services.

Bank

A bank is a financial institution, which accepts deposits and uses them for lending. In this case, youneed not go through an agent; you can do it alone. When you approach a bank with a loanrequirement, you will either be dealing with a loan officer or a mortgage banker. Here, the officerwill represent the bank and will sell the loan directly to you, while continuing to service the loan.Generally, this approach is preferred by people who have an account/s at that particular bank, aswell as a good credit history.

Factors to be Considered

Choosing between two options can be quite a daunting task. Go through the following list to knowwhat things need to be considered before making a decision.Mortgage Broker

Bank

Product Access

He has access to many lenders, and this includes banks, trust companies, finance companies, creditunions, and other credit institutions.

It has limited access to its only line of products. The people you might deal with here are underdifferent profiles, like mortgage bankers, portfolio lenders, loan officers, etc.

Independence and Objectivity

He will work only for you. While he will have contacts with a number of lenders, he is not tied to anyof them.

The officers here will work for the bank. Their loyalties lie with the institution and not with you, soyou may or may not get the best deal here.

Cost

He will not charge you anything (mostly). He is paid a commission by the lending institutions forwhich he works.

You do not have to pay anything here either, since you are not going through an agent.

Services

He will keep you updated for annual reviews, debt consolidation, and renovation financing.

It gets you your statement (annual) and notice for your mortgage.

Rates

Since he knows a number of lenders, probably even those you might not be aware of (perhaps due toless advertising), he might offer you some of the best rates in the market. He might be able toguarantee you an interest rate of 3 to 6 months.

It will offer you a decent rate as well, but only for that specific bank. You may not be able to getaccess to a better deal from a better institution.

Flexibility and Time

He is flexible and helps you save time and money. You do not have to undertake the cumbersometask of visiting the lending institutions yourself. Also, he is aware of the entire market, he knows thebest products available, and he knows where you can get the best deal. He can also be available foryou anytime you wish.

You will have to adhere to their rules and code of conduct, and your loan may take a long time to getapproved. You have experienced help here as well; however, you are not a priority here, the bankis.

Things to Remember

There are certain issues, which need to be taken note of. These are summarized by keeping theirpros and cons in mind.

? Mortgage Broker

Although he has access to a number of lenders, if he has a personal relationship with certaininstitutions, there is no doubt that he might work against you. Sometimes, he may want to providebusiness to an institution that gives him the highest commission; thus, he may not work in yourfavor.

While he may not charge you, at times, some of them do charge a sizable amount as their fee. Thiskind of a situation arises if you have a bad credit history, poor credit score, or a low income. In fact,he might charge you so much that you might as well approach the lending institution directly. So, ifhe is charging you and you wish to continue with this, make it quite clear as to how much the feeswill be.

Some of them might be inexperienced, not knowledgeable, and may not know of all the schemesavailable in the open market.

As much as they assure you that they know the best of lenders and will give you the best deal, thismay not be true always, i.e., if you leave all the paperwork to them, they might talk only with ahandful of institutions to speed up the process, and you might end up with the wrong deal. Hence,be sure to do some research yourself.

? BankThe bank, as mentioned in the table above, will allow you to have access only to its ownproducts. So, you might not be able have a better deal somewhere else.

They have a corporate and impersonal approach, so unless you have been a long-term customer oran eligible customer with a good credit history, you may not get any discounts or preferentialtreatment.

The officer will work for the bank (exclusively), so you can be sure that your advantages are nottaken into priority.

The process might take a long time; also, you have to keep visiting according to their timings.

Banks follow strict ethics and guidelines and are more regulated, and although this is a muchdisciplined approach, your loan approval process may be full of complications and hassles, not tomention, time-consuming.

Points to Discuss

Whichever option you choose, make sure to share the following points with them; in fact, put themdown in writing so that there is no complication ahead.

? Frequency of Payments

Discuss how often the payment must be done. It could be weekly, fortnightly, monthly, or quarterly.Select a time frame that is suitable for you, and let the lender know.

? Prepayment

You must discuss with your agent or the financial institution, within how much time frame you willbe able to make additional payments on your mortgage, and if so, how much of an amount you canpay.

? Penalties

This is the most important issue to be tackled. Please make sure you know what the penalties wouldbe, if you decide to opt out of your mortgage term.

The Verdict

Now this is an individual perspective. You need to ask around, do some extensive research, gatherand analyze the pros and cons, and then decide which one to opt for. While some prefer the bank,either due to a long association or comfort zone, some others prefer going through a mortgagebroker, especially if they can be sure to trust him, and if he is highly reputed and well-read. Youneed to make the right choice considering the factors mentioned above.