Why a Broker instead of the Bank?

The Bottom Line - This isn't the closing costs at the end of the loan, but the total cost of the loan over its lifetime. A broker will have higher closing costs, because it subcontracts services. The payoff to the buyer is a lower interest rate. On a $100,000 loan the savings can realize closing costs in two years, but those savings will continue for the life of the loan and they can amount to thousands of dollars.

Higher Loan Amount - Loan-to-value (LTV) is the percentage of the purchase price that can be borrowed. Local banks often require higher down payments than do mortgage brokers. In fact, brokers can often arrange 100% financing of purchases for qualified buyers.

Debt Ratio - This is defined as the amount of income the buyer can put toward monthly obligations. Mortgage brokers can sometimes allow up to 55% whereas local banks generally limit this at 40% or less.

Education - An ethical mortgage broker will fully inform you about the terms, conditions, and operation of your loan and the other loan programs being considered. Local bank personnel may or may not be in a position to do the same. In a small bank, the loan officer may do double or triple duty and simply not have the time for in depth explanations. In a larger local branch, the loan officer may not have the training to fully answer questions.

More Loan Options - Typically the local bank has a handful of options available, but the typical broker has numerous lenders and hundreds, if not thousands, of programs. With interest only payment options, numerous ARM options, and various term and income verification options brokers can maximize the buyer's income for full buying power.

Why use a Broker Instead of a Bank? Another reason to use a broker is because brokers receive wholesale pricing, whereas banks offer marked up, retail pricing.

While banks often only have limited in house mortgage products mortgage brokers have access to hundreds of different programs. If for some reason your loan gets denied at a local bank you generally have no choice but to find another lender on your own. If your loan gets denied with a mortgage broker it is their job to find you a lender, and normally they can do it in a matter of hours. This can be critical if you are buying a new home and there are other offers on the home.

If you have had past credit problems, a bank may not be interested in doing business with you. They have very strict guidelines regarding the credit profiles of the customers they will lend to, especially for mortgage loans. A mortgage broker, on the other hand, can process your loan application with lending institutions who have mortgage products specifically designed for such customers!

In some markets, mortgage brokers originate over 70% of mortgages.

Brokers often have a staff of Loan Officers on hand so that you will have one person at the company to work with. You will have one telephone number to call for questions and concerns. Also, the Loan Officer will typically only work on a few loans at one time meaning increased levels of personalized customer service for the fewer clients he is servicing.

A knowlegeable mortgage professional can have you from application to closing much faster than your neighborhood bank. This is because they specialize and focus only on mortgages.

» DISCLAIMER: The information contained in this article on 'Why a Broker instead of the Bank?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.