There was a time when most homebuyers obtained their mortgage loans through their banks or credit unions. Today, however, there are a number of additional home-financing providers.
Which one is right for you? Let's take a look at the options.
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A mortgage bank is a direct lender; that is, bank employees alone review your application and make the decision to lend you money. Typically, the bank will sell your loan on the secondary market.
Benefits of a mortgage bank:
- Reliability: You probably know and trust your local mortgage bank. It is regulated by state and federal agencies and likely has strong ties with your community.
- One-stop shopping: You deal directly with the source of your loan.
- Savings: As the loan originator, a bank may save you money in the loan process and/or offer you better terms based on your total assets on deposit with the bank.
- Speed: A bank also may process your loan faster than other providers.
Risks of a mortgage bank:
- Limited choice: Mortgage bankers only offer their own programs. To comparison shop, you will need to speak with several lenders.
A mortgage broker is a middleman who may represent the mortgage loan products of hundreds of different lenders. The broker's goal is to match you with the loan product that best meets your needs at the best price. Once your loan is approved, you will usually deal directly with the loan originator or their mortgage service provider.
Benefits of a mortgage broker:
- Variety: By shopping across a range of different programs and lenders, a mortgage broker may find you a better fit than a mortgage bank.
- Qualifying: A mortgage broker can best steer you to the national or regional lenders that are most likely to accept your application based on your financial and personal information.
- Savings: You may get a more favorable loan rate.
- Speed: A broker saves you time shopping for a loan.
Risks of a mortgage broker:
- Hidden costs: Some mortgage brokers attempt to increase their profit by writing hidden costs into your loan. Best hedge: know the loan process and ask questions.
- Professional oversight: Unlike mortgage bankers, mortgage brokers are not subject to licensing and regulation in all states.