Bank or Broker? What to Consider when Looking for a Mortgage

For most of us, we think that finding the right place to call home is the biggest challenge in looking for a new place to live. What you may have not been aware of is that this is just the first hurdle to clear.

If you have found a prospective place to call home, the next objective to clear is securing a mortgage. Aside from checking which mortgages are available to you. Depending on how good your credit score is, you also have to iron out the issue of who you will have to deal with for the mortgage.

For mortgages and products similar to this, your only option would be either a bank or a mortgage broker. And this does beg the question: where should you secure your mortgage with? Just remember that either option is viable. Forr the option that will truly meet your needs, you will have to look at some few considerations.

How do Either of them Work?

Does it really matter where you get your mortgage? It does and it depends greatly on what you need and what you are willing to put up with.

Both brokers and banks actually follow strict guidelines in dealing with customers. If they are lenient with how they offer mortgages to prospective lenders, their ability to profit from the loan will be compromised.

In essence, you have to remember that these lenders adhere to a strong sense of structure in conducting their work. As such, you can expect for your transaction with them to follow a process which, in turn, gives you an impression of how good of a deal you are going to get with them,

As far as sourcing for their funds are concerned, banks are self-sustaining. In essence, they use their own money to fund whatever mortgage they close with their clients.

Structure-wise, all mortgage advisors, processors, underwriters, and every other person important to the mortgage transaction process work for the same entity: the bank. Upon funding, the loan will either be kept as part of the lender’s portfolio or it can be sold to investors.

Making all of this happen are the mortgage advisors who keep funding in high supply for the bank. They get most of what they earn from originating loans. This also means that their prices are mostly non-negotiable.

Aside from this, these advisors can only sell the products that their employers have currently available. This means that your options for a mortgage are relatively limited with banks.

Despite having non-negotiable prices, however, mortgage advisors coming from banks can offer the same mortgage at various price points.

Brokers

Our idea of a mortgage broker an independent sales agent selling all kinds of products coming from different lenders. Despite their smaller siz and influence compared to a bank, however, a broker has more options to offer.

Brokers often work with wholesale lenders who send rate sheets listing products and rates that would-be lenders could choose from. What is important to remember , however, is that a broker may offer rebates in their pricing especially for expensive mortgages. This will be used to pay off the broker’s commission and other costs on behalf of the borrower.

If the rate is lower, the only extra cost you would have to consider is the broker’s commission which is a minor fraction of the entire loan amount. Regional differences aside, the standard is always 1% across the world.

Pros and Cons

If you choose to deal with a bank, here are some of the advantages that you would possibly benefit from.

Easier Application Process

Throughout the duration of the loan, you will deal with the same department unless something outside from the mortgage itself would tell otherwise. This should gives you more control over the payments.

Less Onboarding

Since you likely have your current account and savings account with the bank, you are already their customer. This means that the requirement to identify yourself again or produce bank statements will reduce.

Low Pricing

When it comes the price, it is important to remember that you as the mortgagee would deal the most with interest. This means that banks offer generally low prices plus interest.

Experience

Banks have a larger combined experience compared to brokers in terms of providing products that the mortgagee would need and can manage. They can take their time in understanding what you need and negotiate the best possible terms with you.

This is because banks are essentially self-sufficient when it comes to funding. Except for dire circumstances, they won’t need to hurry up the negotiation process with you. All that matters is for you to sign with them which furthers the relationship that will be most definitely profitable for the bank. The general aim of the bank is to have a long-term relationship with you. In essence, they will become your one-stop shop for all financial events that happen in your life.

But with every advantage comes an equivalent disadvantage.

Lack of Transparency

A bank is not required to tell you how much they will make off you for your mortgage. If you are not careful, you might end up paying more for the mortgage and you wouldn’t even suspect it.

Limited Offerings

The product library offered by a bank’s mortgage advisor will be limited to the things that are affiliated with the bank. At best, you can get a handful of mortgage options with the bank as opposed to an entire portfolio’s worth of mortgage plans offered by a broker.

Stricter Approval Process

A bank can still reject your application even if you meet all the requirements. A person with an inferior rating but has been the bank’s frequent client will have an easier application process.

This boils down to the bank’s own prerogative or their in-house policies. Perhaps they consider other factors aside from your credit score or perhaps long-time customers get preferential treatment. Either way, your credit score will not only be the deciding factor to your application.

For brokers, they also have their own set of advantages unique to their setup. They are the following

Wider Selection

Since they are independent, brokers give you access to the offerings of multiple lenders. Instead of moving from one lender to another which takes time, you can get to view multiple products from multiple wholesale lenders at the same time.

The chances of you finding a specialized mortgage plan that meets your needs and your payment ability is higher with a broker.

Negotiable Prices

As far as pricing is concerned, brokers seem to be the more “customer-friendly” option. Brokers actually set their own profit margins and have payment terms that are easier to negotiate with.

Not only will you have better chances of finding a good deal, you can make that mortgage plan even better for you.

Transparency

If you wonder how much brokers are going to earn from the deal, they are required to tell that through the statement. Also, the law requires brokers to ell you exactly why the pricing for your mortgage plan is like that and that will include the percentage of their commission.

For brokers, their disadvantages include:

Less Procedural Control

Since a broker never works for the lender, they have little to no control at all at how long the process will take or how complicated it could get. For example, if you secured a deal with a broker and the broker submits your application to the lender, you might think that all is well and good.

However, just because you meet the broker’s requirements, it does not mean that the lender will easily approve of your application. There is a chance that they will put your file in their folder and forget about it. And there is nothing that you and the broker can do about it.

Complexity

With a broker, you are not dealing directly with a lender which means that you are adding extra steps to a process that is already fraught with complexities. And, of course, the added complexity does increase costs in the long term.

Longer Closing Time

Due to the multiple extra steps, there is no exact assurance that your mortgage would be approved within a few weeks or a month. This is not actually a problem if you are not in a hurry. But what if your circumstances force you to run on a tight schedule.

Let us say that you are planning to buy a house and you must close the deal in a month or so before the offer is passed to another buyer. If you seek a mortgage from a lender, there is no assurance that that mortgage will be approved within the short time table.

Which one Should You Go To?

There is no rule of thumb as to which funding source you should consider for your mortgage. A bank or a broker might be applicable for your case if certain conditions are present.

A bank is the best option for you if you are looking for a simple loan and have a good credit rating. On the other hand, a broker is good for you if you are looking for a very specific mortgage and have a subpar rating.

For example, a broker with a credit rating of 600 will not have a lot of mainline options. A broker, however, might help them secure more manageable loans with easier repayment terms. They know which lenders are lenient to applicants with poor credit scores and will most likely approve of your application.

In essence, in deciding if you should head over to a broker or a bank, ask yourself this question: what do you value the most out of the application process?

If you find value in a more secure process with minimal variables, then the bank is your best option. But if your case requires for you to look for a more lenient funding source, then a broker is your best option.

Either way, it is best that you obtain quotes from at least 2 to 3 brokers and banks respectively before you make your decision.