New home buyers frequently ask, “what’s the difference between a bank loan officer and a mortgage broker?” How they’re different can benefit you, but also depends on what you need. Most banks have more conservative guidelines, and if your circumstances are unusual, you may not be approved.
Factors that banks look at include payment history on your car, credit cards, and mortgage for the last two years. They want no collections or judgments (small medical collections excepted) for two years, a credit score 680 or over. Most lending institutions must evaluate if you are a candidate able to repay the loan. They check debt to income ratio is 43% or under, and that your mortgage payment is 30 percent of less of your provable income. Job and dwelling stability must be at least two years.
Bank Loan Officers
As employees of the bank, loan officers paid a set salary including bonuses for writing loans for that particular lender. A bank loan officer typically follows a specific procedure for approval as outlined by that institution. If your loan doesn’t fit the bank criteria, also referred to as overlays, your loan can be rejected. But that doesn’t mean you can’t get a home loan.
Mortgage brokers can work independently or with a brokerage firm but earn through commissions, dependent on the loan amount. They are far more accessible to you and give you individualized attention that you won’t get working with a loan officer at a large bank. As licensed and regulated financial professionals, Mortgage Brokers have a well-developed collection of lenders they work with. Brokers gather documents, pull credit history and verify income and employment. With this information, they apply for loans, on your behalf. They will shop the rates and see which lender is the best fit for your particular needs.
After establishing the lender, the mortgage broker collaborates with the bank’s underwriting department, the title company and your real estate agent to keep your deal on track until the day of closing. The broker usually keeps you informed of their need for additional paper work, or when conditions change.
A mortgage broker does all the work for you, applying for loans, checking programs and pricing with different lenders, finding the lowest rate, negotiating terms and working for your approval.
Who Submits the Paperwork?
By using a mortgage broker, you don’t have to fill out the applications for different lenders yourself, saving you loads of time. Brokers are also very skilled at working through the back and forth of underwriting departments. Even shrewd, experienced buyers know that it takes a lot of time, effort and communication to sail through the process. Brokers are set up to know the marketplace and provide you with loan product options to choose from. If you opt to apply on your own, shop at least three banks before making a decision that will affect your finances for years to come.
If you are leaning toward a mortgage broker, be sure to do your homework. Ask around among friends and relatives to get referrals and then check them out thoroughly by interviewing at least three potential candidates.
Questions to ask:
- What service do they offer?
- What level of experience do they have?
- How will they simplify the process?
- Are their mortgage brokers licenses current?
- Research online reviews and/or check with the BBB.
Wherever you choose to get your loan, the lowest rate will not be the only point that helps you decide. Your loan officer should appear to genuinely want your business and return your phone calls in a timely manner. Additionally, they will normally provide you with a list of typical fees. It’s always important to know what the expected down payment will be and if your broker or lender is approved for the loan products you need. Lastly, ask about how long it takes to be pre-approved, process and close the loan.
Considering these key points will help you find the broker or lender that is the best fit for you.