There are many arguments back and forth about this topic, as well as many variations for both categories. With the widespread use of the internet today, a mortgage broker could actually be an internet website, and a “local bank” could be located in Iowa. There are many intricacies involved in a mortgage approval, and in this business horror stories abound about loan closings through many online brokers and lenders. This is not to say all of them are bad, but we really recommend dealing with at least someone you can speak with. The benefit of using someone local is that should there be a problem, you have someone close to help solve your problems. A company within driving distance will probably be a lot more dedicated than someone on the other coast of our great country. A local bank is a direct lender. They offer their specific loan programs, usually geared towards people with average to better than average credit. They can offer competitive interest rates, and the convenience of having a local branch to make payments at. It is very important to realize that there is still an opportunity for your loan to be sold to another bank or lending institution, even if you close with a local branch. The terms of your loan cannot change, but you may still end up mailing your loan payment to California. A Mortgage Broker is an independent business set up to create and develop relationships with multiple banks. Some Brokers will sign up with as many as 30, 40, or even 50 different lenders, offering a wide range of products, rates, and options. Many times, a broker will be signed up with many of the local banks you have in your neighborhood. Instead of making money off the monthly payments of interest like a lender, a broker makes their money off individual transactions. Mortgage Brokers are “sold” interest rates at wholesale prices for individual loans. As the interest rates go up to the market rates, the lenders themselves pay the brokers to place loans with them instead of a competitor. A broker can also collect points (see page on this site to explain points)- remember it is not always necessary to pay points. Many times a mortgage broker can actually beat the rate a bank would quote you directly. Banks pay an employee to sit in their branch, for vacation and sick time, etc. A Mortgage Broker works as an independent contractor for the lender, so the costs are much less to the lenders themselves. Click here to learn what 8 questions you must ask whatever Mortgage Broker/Lender you choose
Note- If you would really like to work with a certain bank but would like the personalized service of a broker, don't be afraid to ask your broker to work with a certain bank. If they work with them, they should be more than willing to offer you the right to pick your lender. Two things to remember, though. The bank of your choice may not have the best interest rate available. Also, remember that all lenders have the option to sell your loan to another servicer(company that collects your mortgage payments) so it may not make sense to get hung up on a certain lender, as they might sell your loan to someone else anyway.
