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Bank Vs. Mortgage Broker: Which is Best?

Reliable Mortgage • Sep 08, 2022

Deciding whether to go with a bank or a mortgage broker when buying a home can be confusing. Both have pros and cons, so which is the best option for you? Here's a breakdown of the differences between banks and mortgage brokers.

The Different Types of Mortgage Lenders

It's important to understand the different types of mortgage lenders to get the best rates and loan products for your needs. The two primary types of mortgage lenders are direct lenders and mortgage brokers.

Direct Lenders

A direct lender is a financial institution (such as a bank or credit union) that originates, underwrites, funds, and owns mortgages in-house. They lend money directly to the borrower.

Direct lenders typically have strict guidelines regarding whom they will lend to and what products they offer.

Pros

Perhaps the bank you already work with offers loans. This allows you to work with an institution you are already familiar with.

Cons

They have limited product selection, and they generally offer higher rates than brokers.
Some banks have very strict rules and guidelines, even rejecting good candidates from financing.

Mortgage Brokers

Mortgage brokers are intermediaries between borrowers and lenders. They do not fund the mortgages themselves. Instead, they work with many banks, credit unions, and other lending institutions to find the best mortgage products for their clients. Because of the sizable pool of products that they work with, they can often find better deals than the banks.

Brokers also have excellent up-to-date knowledge of the different types of mortgages available. They can offer guidance on which one would best suit your needs. They may have more flexibility when it comes to loan products and can sometimes negotiate better interest rates for their clients.

Pros

With their wide variety of lenders and products, brokers may provide a more specialized product with better rates and conditions, resulting in less stress and more savings.
Brokers generally work with wholesale lenders who can offer much better products than many direct lenders, in part because they produce in such high volume compared to retail lenders.
Brokers have the ability to be more agile, and are generally able to close more quickly depending on the loan products they offer.

Cons

Brokers work with other companies’ products, and so you want to make sure that they are very familiar with the loan products they offer. A good mortgage broker will know the ins and outs of the products they offer.

How do direct lenders work?

Direct lenders are best known for providing borrowers with the funds they need quickly and without hassle. But how exactly do they work?

Direct lenders will assess your borrowing needs and determine how much money you are eligible to receive.
Then they will contact you to discuss the loan terms, including the repayment schedule, conditions, and interest rate.
Once you have agreed to the loan, the loan is drawn up by the underwriter and the direct lender will transfer the funds to your bank account.
Finally, you will be responsible for repaying the loan according to the agreed-upon schedule and interest rate.

How do mortgage brokers work?

Throughout the process, the broker is a middleman between the borrower and the lender, working on getting the best deal possible.

Meeting with the potential borrower and broker to discuss their financial situation, credit history, and needs.
The broker will develop a list of potential loan companies with the best mortgage rate and terms that apply to the client's needs.
The list will then be given to the borrower, who will choose the lender they would like to work with.
Once this decision is made, the broker will work with the backer to finalize the loan terms and get the best rates and terms for their client.

Mortgage Brokers vs. Banks: The Bottom Line

Choosing between a mortgage broker and a bank can be tricky. Still, it's important to understand each option's pros and cons before deciding.

Mortgage brokers are best known for their ability to shop around for the best rates on behalf of their clients. They also have a good working knowledge of the different types of mortgages available and can offer guidance on which one would best suit your needs. If your application comes with challenges, such as a poor credit score or a low down payment, working with a broker might help you get approved for a loan with more favorable terms and a better rate.

On the other hand, banks can occasionally get the money to you quicker if they already have your information on file. However, they tend to offer a more limited selection and typically have higher interest rates. They also may require a higher down payment or credit score.

If your loan file is straightforward, you might be able to save a bit of time by using a bank that already has all of your financial information in their system. However, because banks have a limited selection of loans and generally offer higher interest rates and slower closing times, this slight convenience may come at a great cost.

Choose a Trusted and Reliable Local Mortgage Broker

So, which is the best route for you – a bank or mortgage broker? Well, that depends on your needs and what you're looking for. Direct lenders can be quicker. However, mortgage brokers have more options to offer borrowers, often with better interest rates and lesser fees. They can also help navigate the complicated world of real estate and do the leg work for you.

Ultimately, it's important to do your research and compare before deciding on a lender. If you need help navigating the process or want someone who can advocate for you when negotiating a rate, don't hesitate to contact the leading Dawsonville mortgage brokers - Reliable Mortgage!

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