Ready to head to a lender and apply for your home loan? Going to your bank for your mortgage may feel like the obvious choice. After all, you’re already a customer and having all your financial services under one roof is convenient. But is it the best choice? For some borrowers, choosing to work with a mortgage broker is the right way to go when buying that Miami, FL, real estate. There are pros and cons to each option and reasons why one may end up being the more favorable choice for you. Here’s how to decide whether going the bank or broker route makes sense, and what you can do to pick the right mortgage.
Why stick with your bank?
The biggest benefit to using a bank to get a loan is that you already have an existing relationship with the institution. It may also be easier to manage your money and your monthly budget when all your financial accounts and products are consolidated in one place. But there are downsides to sticking with your bank when you take out a mortgage. Nannette Kamien of Inspiration Financial Planning in Illinois points out that by sticking with a bank, you may work with someone who doesn’t have expertise in home loans. Or your loan officer may be tied to using their bank’s products, even if there are better options for you elsewhere.
Worst of all? The process could move more slowly — and potentially put your closing date at risk. “Their closing turnaround times can be longer because of the burden of complying with some of the new regulations,” Kamien adds, “or having to send your information to a central location to be underwritten.”
When does a broker make sense?
“Brokers can be helpful in many ways,” says Jeffrey Christakos, who runs Westfield Wealth Management in Westfield, NJ. Christakos explains that mortgage brokers may be able to find better rates or terms for borrowers by surveying the total marketplace instead of being limited to a set suite of products.
Austin Lewis, a financial planner in Fort Worth, TX, agrees. “Brokers can shop programs for your unique needs,” he says. Everything should be done in-house, so that the origination, processing, underwriting, and closing of the loan is a smoother process from start to finish with fewer delays and better communication. Lewis, who runs Rooted Financial Planning, also points out that brokers are “solely in the business of closing your loan.” A good mortgage broker should be with you at every step of the process to help you close as soon as possible.
But as with banks, there are some downsides to using a broker that you should know. Even though they can shop the entire marketplace, says Christakos, some brokers may be biased toward certain lenders. Lewis adds that you can lose the advantages of choosing a broker over a bank if that broker doesn’t process all parts of the loan in-house.
So what’s the best choice?
Many people feel they can trust their current bank more than a new entity. But when it comes to mortgages, almost all loans are backed by Fannie Mae, Freddie Mac, the FHA, or the VA — no matter who originates it. These institutions establish guidelines that all borrowers need to meet to get final approval on a mortgage, explains Wendy Hubbard of Heirloom Financial Services in Phoenix, AZ. “Whether you choose a bank or you choose a broker, they must all underwrite their loans according to the guidelines of which entity is backing the loan,” Hubbard explains.
If you think you’ll have trouble qualifying for a loan because of poor credit, or you know you’re considered a risky loan candidate, a broker may be the better choice. They are typically accustomed to sourcing a variety of loan options and will take time to find the most competitive rate for you.
Tips to help you pick the right mortgage
Regardless of what appears to be the best option at first glance, you should always comparison-shop before making a final decision. “There’s no reason not to shop around,” says Cristina Guglielmetti, a financial planner who runs Future Perfect Planning in New York, NY. “See what your bank will offer you, and talk to a mortgage broker to compare what they have available. Brokers might have access to lower-cost products and the process may be more transparent; they’re also not tied to any particular lender so [they] can present a variety of choices.”
Guglielmetti says to aim for an apples-to-apples comparison when you shop around, meaning you should look at factors such as interest rates, fees, and closing costs on the same mortgage product from multiple sources. “And, of course, ask the broker how they are compensated,” she adds.
Once you’ve made a decision, Hubbard suggests asking your lender — be it a bank or a broker — if they directly underwrite mortgages, which can shorten the time necessary to put together a loan. “Ask what their average time frame is for getting final approval for a purchase,” she adds. “Most mortgage companies can do that in three weeks or less, whereas banks have always struggled to close in 30 days.”
Did you go the bank or broker route when you bought your home? What do you think are the advantages of each? Share in the comments!