Mortgage Broker vs. Bank: Which is Right For You?

Both mortgage brokers and banks can help you secure a mortgage. Mortgage brokers and banks both have pros and cons worth weighing. Mortgage brokers offer greater convenience, while working directly with a bank may offer lower total costs. Read on to learn the pros and cons of mortgage brokers versus banks to increase your chances of getting the home of your dreams at the most favorable rate.

Mortgage brokers and banks can both offer you a path to securing a mortgage. You should consider key differences, including access to lenders and the range of products. 

A bank can only offer the loan products it has available. On the other hand, a mortgage broker can source lenders offering different types of loans. If you have a special situation, mortgage brokers can help secure less common loan types, like a bank statement mortgage or an unqualified mortgage. 

A mortgage broker has access to a broader range of lenders, giving you potentially greater options. But if the bank offers the type of mortgage you need, it might not be necessary. Mortgage brokers can make shopping around for a mortgage easier. 

Considering a mortgage company versus a bank also means considering the types of services offered. Mortgage brokers also offer more personalized service. If you have gaps in your employment history or if you’re a small-business owner, a mortgage broker can help find lenders amenable to your situation and consider favorable unconventional loan options. 

Generally, working directly with a bank will result in lower interest and fees because you’re not paying for the convenience of a mortgage broker’s time. The direct connection can also lead to potential discounts. In the mortgage broker versus bank debate, a bank is clearly the winner for lower fees. But that doesn’t guarantee the interest rate your bank offers is the lowest available. A mortgage broker may earn their fee by securing a lower interest rate overall. 

Shopping for a mortgage can be time-consuming. A mortgage broker can save you time, especially if you need a nontraditional mortgage or have other special requirements. Both mortgage brokers and banks offer similar processing times. Depending on your situation, one may come out ahead. 

If you have the required documentation for a mortgage ready, a bank may be able to process your application faster. But if you have an unusual situation or special consideration, a mortgage broker can help speed up the process to qualify for a mortgage. 

Mortgage brokers offer significant benefits and a few drawbacks, mainly in fees. Here’s what you need to consider. 

• Support in preparation: Mortgage brokers can answer questions about home loans, help you decide on the type of mortgage needed and gather the required documentation. 
• Loan availability: Mortgage brokers have access to a wide range of lenders and can better guide you toward lenders that offer loans you’ll qualify for. 
• Personalized support: Mortgage brokers can help prepare a mortgage application even for unusual situations like gaps in employment history, self-employment or a lower credit score. Even if you’ve got everything lined up and meet traditional standards, a mortgage broker can guide you through the mortgage selection process and ensure you make an informed decision. 
• Time savings: Mortgage brokers can do a significant portion of the legwork in comparing mortgage lenders for you. They will guide you through selecting the right lender and then through the closing process and due diligence. Mortgage brokers often handle paperwork and communication with the lender on your behalf to save you time and stress.

• Fees: The main drawback of using mortgage brokers is the additional fees you’ll pay for convenience. Ensure you know the mortgage broker’s fees before you work with them.

Banks also offer many pros, namely simplified communication and potentially lower fees. Private lenders and banks offer similar pros and cons. A bank can offer major advantages if you’re willing to crunch numbers and do some extra research. 

• Lower fees: Mortgage broker’s fees are typically 1% to 2% of the total loan amount. While some lenders will pay the mortgage broker’s fees, this is usually rolled into the loan amount or increased interest rates. Working directly with a bank can result in lower total fees. 
• Possible discounts: You may be able to secure additional discounts on a mortgage if you’re an existing customer at the bank. If your bank already offers a low rate and favorable terms, getting a discount on closing costs or paying no origination fee could make the offer a clear winner.
• Simplified communication: Bank employees should be able to address any issues or answer questions immediately. When you don’t have to go through a third party, it simplifies communications. 

• Extra work: Compared to working with a mortgage broker, you may have to do more work yourself. You’ll need to compare interest rates to find the more favorable bank mortgage lender. 
• Costs: Working with your bank without additional research may mean you miss out on lower interest rates. 

Using a mortgage broker versus a bank depends on your needs. Here are steps to consider to find the best personalized solution. 

If your priorities are to pay as little as possible and you don’t mind doing extra research and crunching numbers yourself, you can do the work of a mortgage broker, but it will take more time. On the other hand, if you have uncommon mortgage needs or prefer the convenience of having someone research mortgages for you, a mortgage broker could make more sense. 

Just as lenders may have different offerings, mortgage brokers may have different lenders they commonly work with. Whether you choose to work with a mortgage broker or a bank, you’ll want to compare private mortgage lenders and banks to understand rates and offerings. Both mortgage brokers and banks can offer solutions, depending on your situation. That’s why research is important.

Don’t be afraid to ask questions. Here are 15 questions to ask mortgage lenders and 23 first-time homebuyer questions. Asking questions can help you understand the home-buying process and the best current offers on interest rates. 

There’s no reason you can’t work with both a broker and a bank. You’ll only pay when you sign a mortgage. A bank and a mortgage broker can research options and provide solutions that may offer the best options in your situation while building your understanding of the mortgage application process. 

If you’ve failed to qualify for a mortgage or received offers with high-interest rates, a mortgage broker may be able to help you secure a mortgage at a more favorable rate. On the other hand, working with a local bank may help you get the best current interest rate for your situation. Which works best for your situation can also change with time. Consider both options and carefully weigh offerings to get the most favorable terms on a mortgage this year.