If you’re in the market for a new home, more than likely, you’ve already considered your mortgage options. And you may be thinking about where to go to apply for a mortgage. Any real estate agent will tell you, it’s best to apply for your mortgage and get pre-approval before you start shopping. This ensures you’ll find a home that’s within your budget and financing will be easy to get.
But the question still remains . . . where should you get your mortgage? A bank or a mortgage broker? There are pros and cons to each and it depends on your loan scenario and your individual needs.
For the most part, there is only one strong reason for working with a bank over a mortgage company and that is to build on your existing relationship. If you already have a strong relationship with your bank and the loan officer there, you may be able to get financing easier and add your mortgage to your existing bank accounts so that your payments are automatically withdrawn from your existing accounts.
But how often do people have strong relationships with banking professionals anymore? Most people bank online or through the ATM machine, rarely seeing anyone inside the bank. In fact, many banks encourage this because it reduces their overhead and payroll. And it’s usually only the larger banks that offer mortgages anyway. Small, hometown banks don’t usually provide this kind of funding.
Mortgage companies are often the better choice for a few reasons.
- They work with you and a variety of lenders so they can shop your mortgage with multiple lenders to get you the best rate. Banks can only offer you their current mortgage rates.
- Mortgage companies offer a variety of services and different types of mortgages to meet your needs while banks are limited by what they offer in-house.
- Mortgage companies are usually able to handle tricky deals that banks can’t because of their specialized knowledge and various lending partners.
A mortgage broker is able to work with both mortgage lenders and banks to make sure you get the best options available to you. They also handle the preparation of your loan application and compile your financial documents to make the process easier for you. With a bank, you would need to prepare everything yourself to present to the lender.
If your credit score is a concern, a mortgage broker is going to be able to shop your loan easier than a bank would. Banks often require a higher credit score in order to qualify for a loan while a broker can find a lender that can work with you if you have a lower score. But keep in mind that your credit score is a big determining factor of your interest rate so improving your score can help to lower your interest rate which leads to lower monthly payments.
One important factor to keep in mind as your shopping for your mortgage is that mortgage brokers are paid a commission by the lender you get your mortgage through. This means that you may be offered a lower rate by one lender, but they pay a lower commission to the broker so the broker processes your mortgage through another lender that pays them a higher commission.
Make sure you talk to your broker about the lenders they work with and ask about how they decide the best option for you. It’s important that they are working for your best interest not theirs. You may save a little by working with a bank, but your options are more limited and you may have a harder time getting approved.
When shopping for a mortgage, a mortgage company is ultimately your best option over a bank because they have more lenders available for you to work with, can work with any special circumstances you have, and take care of all the paperwork making your job easier.
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