What are the advantages and disadvantages of getting a mortgage loan with a bank as opposed to a mortgage broker?
A loaded question for sure! I want to try to make this as easy as possible for you. Let's put it another way... when is it smart to use a mortgage broker rather than a bank? The first thing you want to consider is this- what's worth to you to have professional assist you with your mortgage financing?
Banks typically do not hire highly trained and experienced loan officers to handle their residential loans. They don't really need to - they usually only offer a limited product line. 15 year fixed, may be a 20 year, a 30 year fixed and maybe a couple of arm's such as a 1 year arm, maybe a 5 year. Most banks are also not willing to pay their loan officers very high salaries nor do they typically pay commission. So the old saying comes into play - you get what you pay for. For example - I have been in the mortgage industry for over 23 years. Now, if I went to work for a bank, it certainly wouldn't to help people with their mortgage applications. Any position I would accept at a bank would be an 'upstairs" position - you wouldn't see me very much as a customer of that bank. And I am not tooting my own horn here... it's just that banks won't pay their loan officers what someone with my experience commands in the marketplace.
That said, (and I might ruffle a few broker feathers here) your chances are good that you will save some money on closing costs by going with a bank. Banks typically don't put any junk fees into their loans while many brokers do. At the same time however, a good mortgage broker has a good chance to get you a lower rate than what you will get at a bank. The reason? Because good mortgage brokers represent mortgage programs from many lenders.
For example, my company represents most of the major lenders in the country. Right now, one of our lenders is offering rates at 1/8% to 1/4% lower than just about everyone else. So we are offering loans from that lender. In two weeks, that may change... it could change tomorrow! So we look at all of our lenders everyday. Our loan officers are informed of who has the best mortgage rate each day and that is the lender we put our loans through. At the same time, we do charge a processing fee that banks may not charge. And our lenders all charge an additional fee also - underwriting/doc prep -whatever they call it, it adds up to a junk fee. So chances are, by using a good mortgage broker, you stand a good chance of getting a better rate but you may pay more in closing costs.
So how do you decide? First, you need to know that your mortgage broker is a good one... that's number one. Because I will also say this - the chances of getting ripped of by an unscrupulous mortgage broker are much greater than getting ripped off by a bank. So get a recommendation or interview a few before choosing one (of course you can always use me ;-) If you have a good mortgage broker to go through, I would do that if the loan I was seeking was greater than $125,000 - $150,000. The reason is simple - if you pay say an extra $800 for going through a broker and your loan amount is only $50,000, well, that $800 is almost 2% of your loan amount. In percentage terms that's a lot while it's not a lot for a $200,000 loan. Saving 1/8% for $800 is a great deal at $300,000, not such a great deal at $80,000.
At my company we get a lot of loans from around the NYC area. Our average loan size from that area is near $500,000. We save those people money every day of the week. But if someone calls from say, upstate NY and they are looking for a $45,000 loan, well, we often let them know which bank is offering an attractive rate in their area and we send them there. That's the right thing to do. And good mortgage brokers will do the very same.
First it is important to understand that there is no one size fits all answer to your question. Due to the fact that there are many loan programs available, many loan types, and the fact that programs, rates, pricing, and delivery options change regularly, each situation will vary. It is important when looking for home financing to compare options either with separate companies, or through your own personal research to make certain that you are obtaining a good deal. There are a number of resources, including many on this site (mortgage rates page, the rate blogs, the forum) when you can get advice on whether or not you are obtaining a favorable deal. That being said, I will share with you some of the differences in origination channels.
Obtaining a loan from a bank, just like any other option has its benefits and its downfalls. Banks have, over time realized that the more accounts you have with that bank the more likely they are to retain you. Bank market research shows that a consumer with 4 or more products with a bank is over 90% likely to keep their relationship with that bank over time. That's why there is a push on debit cards, credit cards, online bill pay, checking accounts, overdraft accounts, and loans. The more they can load you up with, the more loyal you tend to be. To that end, many banks have begun offering special discounts to consumers with accounts with them. It may be a small or simple discount for having a checking account, or a larger or more elaborate discount for having large sums of money on deposit. Because of this, you can sometimes leverage these specials to obtain a very good deal. That is one upside to a bank. An example of a downside would be limit on products available. Banks are typically more conservative with loans, both in program and in execution of those programs. Additionally each bank has only their product line available. For example, you can't walk into Wells Fargo and get a loan from Chase. Even if Chase has a specific program that would benefit you more, you are stuck with Wells Fargo loan products. This can be a detriment if you are at all outside the box. An example of the aforementioned conservative philosophy in execution of loan programs would be that a bank may place additional requirements on top of the lending guidelines. FHA for example does not require a minimum credit score. Bank ABC may decide that they however will not write an FHA loan with less than a 640 credit score. In that case the bank may tell you that you do not qualify for an FHA loan, when in reality you don't qualify for their FHA loan.
On the flip side of this coin is the mortgage banker or broker. A mortgage banker/broker will have access to multiple lenders, and with those multiple lenders come multiple product lines. They may have one bank that deals exclusively in jumbo loans, one that specializes in very clean A paper loans that offers very low rates, one that specializes in FHA loans with past credit issues, etc. A good banker/broker can leverage these relationships often times to obtain more favorable terms for a loan. This is because they have many more options to place a loan versus a single product line. The downside to a banker/broker is that, whether they are funding and selling the loan like a banker, or simply brokering the transaction to another funding source, they will not service your loan. They are mortgage originators, meaning it is their job to originate loans. The loans will be serviced through a bank that will collect payments, provide customer service after the closing etc. To some people this may be worth an extra premium to work with your local bank.
The moral of the story is, there are goods and bads to both and anyone that tells you otherwise is giving you a sales pitch. Ultimately it is important to use the resources at your disposal as a consumer to ensure you are getting a fair deal.