It's like a long time ago that when you applied for a mortgage, you went to the local bank - the place where your checking and savings account were to apply for the home loan. While I'm unable to pinpoint the exact date that this was changed, we are living in an age of modernity where the process is often very different.
Yes, banks and credit unions remain a major market share of mortgage origination. But a greater chunk of market share is now occupied by companies who specialize in creating mortgages.
There are many competing mortgage companies in this market. Companies that search for or provide mortgages to homeowners have a lot to make, not just on the interest, but also on closing costs. When you are looking at companies that specialize in mortgage lending, there are two basic categories of mortgage originators.
Mortgage Banker and Mortgage Broker
We will look at the mortgage lender first. When you do business with a mortgage banker, you have direct contact with the firm that made your loan. Often the term direct lender is used to define a mortgage banker. The mortgage banker might not be a mortgage servicing company, that is, they're not going to be the company where you make your mortgage payments, however, it is their underwriting choice to determine if your loan is within the guidelines of approval. Though a mortgage banker's role is typically limited to the products they provide to borrowers, a lot of mortgage bankers have relationships with "wholesale" lenders who are able to broker loans in the event that the borrower's needs or borrowing profile do not meet their own mortgage loan offerings.
In the current market for mortgages, mortgage banker underwriters usually make their choices based on the guidelines set by the agencies. Mortgage Bankers Association of America is the trade organization for mortgage bankers.
Next, we will examine the mortgage Broker
A mortgage broker meets the same needs like the mortgage banker, however in a different manner. The mortgage broker although not a banker and does not accept or deny a mortgage application, is able of drawing on a broad variety of lenders to help clients find the best match and get approved for the mortgage loan.
To say that using mortgage brokers results in a middleman effect (broker to the lender), and to then consider that this creates more cost to the borrower is not entirely fair. The lending industry in the retail space is not the business of mortgage brokers. Direct lenders, that are available to access by yourself, usually have a wholesale section that is responsible for servicing loans submitted by mortgage brokers. These departments are commonly called wholesale lenders. They offer prices that are not accessible to the general public. They also allow brokers to compete at retail-level mortgage bankers. It is crucial to remember that a wholesale lender may sell their products at an extremely low cost in order to increase their loan origination pipeline. A broker may be able to benefit from this, while a mortgage banker would not.
When it comes to analyzing the mortgage market, both nationally and regionally a broker knows the specialization of each lender. Based on an assessment of the borrower’s credit history and financial history, the broker is able to find the lender that is most suitable for their particular requirements. The broker will check your credit, employment history, schedules title searches, and hire an appraiser for your property. After all this information has been compiled, the broker will select a mortgage lender who will consider the application based on the individuality of the applicant's financial data. Some offices have mortgage brokers who also serve as lenders.
The most important trade association for mortgage brokers is the National Association of Mortgage Brokers It is a non-profit organization with a code of ethical conduct and business ethics that applies to any broker who wants to be an associate member. It is possible to search their website for a broker who is a member of your area.
If you decide to go with either a mortgage banker or mortgage broker, there is no way to be wrong in making that choice on its own. It is an excellent idea to inquire of your family and friends, especially those who have been through the process in recent times, for recommendations on a mortgage professional.