Mortgage Banker Vs. Mortgage Broker: How to Choose

• Mortgage bankers and mortgage brokers can both offer you a loan, but the difference is in who they work for.
• A mortgage broker works with many different lenders, which can help when you’re looking for different options and lower rates.
• A mortgage banker works for a financial institution that make loans directly to you, which may help you close more quickly.
• Read more stories from Personal Finance Insider.

When you buy a home, you’ll interact with a wide range of industry professionals at each step along the way. When it comes to financing, chances are you’ll be faced with the choice of working with a mortgage banker or a mortgage broker. While each ultimately helps you get the same thing (a home loan), there are key differences between them that can affect you and your money.

“Both can assist with a home loan and guide people in searching for the right mortgage based on their needs,” says Stephen Keighery, CEO and Founder of Home Buyer Louisiana. “But one needs to know the difference between the two and determine which services can give them the maximum benefits.”

Mortgage banker vs. mortgage broker: At a glance

Mortgage bankers are different from mortgage brokers, primarily in where the funding is sourced for the loan and who makes the actual lending decision. 

• A mortgage banker works for a single lending institution — such as a bank, credit union, or mortgage company — that services, sells, or originates residential mortgage loans offered by that lender.
• A mortgage broker is an agent who, working with multiple lenders, acts as an intermediary to find or negotiate a residential mortgage loan on behalf of an applicant in exchange for a commission. 

What is a mortgage banker?

A mortgage banker is an employee who works for and offers loan products from a single lender. That lender underwrites the loan, handles the closing, and provides the funds. The process is generally streamlined in-house by working with a mortgage banker.

“The mortgage lender is the financial institution, typically a bank, that lends the buyer the money to purchase a property, and going through a lender is the most direct route to take toward acquiring a loan,” says Matt Woods, co-founder and chief executive officer of real estate tech company SOLD.com.

Banks may also offer special rates to pre-existing bank customers. Additionally, the mortgage banker is closely involved in making the actual lending decision.
 
“In this sense, the mortgage banker is ‘closer’ to the process and has direct visibility into the decision to approve and close the loan,” says Matt Hackett, operations manager of direct mortgage lender Equity Now.

“One disadvantage a broker may have is that the appraisal a broker obtains for a conventional loan is only good for the one lender they submitted the loan to,” Hackett says. “If that lender denies the loan for some reason, the borrower would need to pay for another appraisal if they wanted the broker to submit the loan to another lender.”

Mortgage banker pros and cons

A mortgage banker’s role in your homebuying process

The mortgage banker is one of the first people you’ll contact when buying a home. You’ll want to get preapproved for a loan before you go shopping for real estate so you can narrow down your search to only homes you know you can afford.

After you’ve found your property and the seller has accepted your offer, you’ll send the contract to your mortgage banker. You will complete a full mortgage application with your lender at this point. You’ll need documentation not only of your income and funds but of your debts as well. 

You may be asked to provide additional documentation, and an appraisal will be ordered by the lender. Any issues will need to be addressed before heading to the final approval.

At closing, your loan will be funded and you’ll assume ownership of the property. Your lender may be the servicer on your loan but also has the option of selling the rights to your loan to another servicer. You’ll be notified if you have a new servicer after the loan has closed. 

What is a mortgage broker?

A mortgage broker is an agent who finds or negotiates a residential mortgage loan on behalf of an applicant in exchange for a commission. They work with multiple lenders, which means they have greater access to different mortgage products and terms. 

That can put mortgage brokers in a much better position to get you the best interest rate and lower fees than you might be able to when working with a mortgage banker.

“Mortgage brokers typically utilize a powerful loan pricing system to help price your loan across 50-plus lenders at one time,” says Andrew S. Weinberg, co-founder of Silver Fin Capital Group. “An experienced mortgage broker can quickly focus in on the best lenders for your scenario.”

Another benefit of using a mortgage broker is that you may not even need to pay a fee for their services, according to Weinberg.

“In most cases, mortgage brokers do not charge the client for their services,” he says. “Their compensation comes solely from the wholesale lender without adding a penny to your closing costs, and only in the event your loan closes.”

To be clear, sometimes the borrower does pay the mortgage broker. If you work with one, be sure to look carefully at all the contracts and the loan estimate provided to you. And remember to ask:

• What fees are to be paid by me in cash before closing?
• What fees will be paid from loan proceeds?
• What fees are financed?

Mortgage broker pros and cons

A mortgage broker’s role in your homebuying process

The first part of obtaining a loan from a mortgage broker is very similar to what you would experience with a mortgage banker. You’ll work with them to get preapproval, find a property, get an accepted offer, send over the contract, and complete a full application.

Where it differs is at the point where the broker submits an application. Since the broker has access to multiple lenders and mortgage products, you’ll be able to work with your mortgage broker to select a mortgage that best suits your needs.

“Getting terms structured in your favor is the exact kind of benefit a mortgage broker provides,” says Bill Gassett, founder of Maximum Real Estate Exposure.

“Let’s say you bought a piece of land and wanted to build your own custom home,” he says. “Some borrowers might walk into their local Bank of America or Wells Fargo to get a construction loan. Going about getting a mortgage this way is almost always a mistake. Nothing against BOA or Wells Fargo. They are fine lending institutions. They just might not offer the best mortgage when you want to build a house.”

As with a mortgage banker, you’ll need to keep your documents updated throughout the process, and an appraisal will be ordered for the lender. 

Another major difference between a mortgage banker and a mortgage broker is your mortgage broker will never service your loan, while a mortgage banker may. After closing, you won’t need to contact your mortgage broker again until you need a new mortgage.

 When it comes to your money and whether a mortgage banker or a mortgage broker would be best to work with, only one thing is certain: be sure you’re comparing apples to apples when you’re looking at the terms of your loan. This means you’ll want a loan estimate from each. This standardized document lists the annual percentage rage (APR), fees, and true costs of the loans. When comparing loans side by side, you can find one that is truly best for you and your circumstances.