Mortgage Broker vs Bank or In House Lender
Going with a realtor’s in house lender or bank is a 50-50 proposal. Sometimes it works, sometimes it does not. In general, a mortgage broker can close the same loans an in house lender can. But, a mortgage broker can close many more loans that an in house lender cannot.
In house lenders give you an existing relationship, with history and predictability or access. But in house lenders have more conservative loan programs. Meaning tougher lending standards. There is also more bureaucracy as they are part of a larger company. They also have less incentive and can expect business from others in the office.
Working with a mortgage broker increases your odds of getting a loan. They have access to more lenders with varying standards. The interest rates can be lower as there is more competition. And they can close more deals because of working relationships with lenders and partners. It is easier also to get in contact with the main person handing the loan, meaning less bureaucracy.
Mortgage brokers can make mistakes like anyone else. Some may overcharge their fees unless paid by the lender. Or they may make false promises to get your business.
Here are the main reasons to use a mortgage broker:
More Homebuyers Qualify; Typical lenders need a 620-640 credit score. This eliminates 1 in 5 homebuyer whose credit is above 580. Even lower.
- Lower Credit Qualifications. Ralph and Laura moved to central Florida and found their dream home offered by a builder. But their credit score of 569 meant they did not qualify. They then applied with me and I have a lender with a 550 credit score for veterans. The loan closed.
Incentive: Mortgage brokers are commission based. It is a broker’s best interest to get the best program and rate to close a loan. An in house lender may collect as little as $500 on a loan. A mortgage broker may collect as much as the realtor.
Access: Most mortgage brokers work the loan from start to finish. Meaning you’ll have a direct access and have your questions answered. An in house lender often has many different players work your loan.
Service & Options: Strong mortgage brokers have a network of service providers that can make the deal work.
- Lower payments. One homeowner denied by a retail bank for a high debt to income. They then applied with me and I recommended my insurance broker. This lowered the insurance payments by over $1,000 a year. The loan closed.
- Loan Managing. One homebuyer’s deferred student loans payments of $400 monthly forced a denial with the in-house lender. I guided him to alter his deferred payments to an income based approach. This lowered the monthly by over $200. The loan closed.
Close Loans In house Lenders Cannot: A mortgage broker is the contact between the home buyer and the bank lender. The broker works for the homebuyer. The in house loan officer works for their employer. The broker can find a lender who accepts home loans that the in house lender foregoes. In house lenders have limits on products, principles and criteria that they must follow. This limits the home loans available.
- Collections Accounts. Peter got denied a loan by an in house lender because of an “overlay” or rule prohibiting collection accounts over $2,000. They applied with me. I have a lender that allows for “compensating factors” (12 month of on time rent payments). The loan closed.
- Missed Payments. Allen applied with an in house lender following a bankruptcy several years past. But a missed $25 credit card payment some 18 months ago resulted in a denial. The lender’s rule noted that he had to “reestablish his credit,” meaning perfect credit. They then applied with me and we worked to draft a strong letter of explanation to explain away the missed payment and applied with a more flexible lender. The loan closed.
- Rescoring credit. One borrower got denied by a bank, after signing a contract, because his score was 575. I had him pay down a credit card and rescored his credit, bringing it to 590. The loan closed with the broker.
This bears repeating: In general, a mortgage broker can close the same loans an in house lender can. But, a mortgage broker can close many more loans that an in house lender cannot.