Mortgage Broker vs. Mortgage Banker
by Bill Bronchick
Many consumers assume that “mortgage companies” are banks that lend their own
money. In fact, a company that you deal with may be either a mortgage banker or
a mortgage broker.
A mortgage banker is a direct lender; it lends you its own money, although it
often sells the loan to the secondary market. Mortgage bankers (also known as
“direct lenders”) sometimes retain servicing rights as well.
A mortgage broker is a middleman; he does the loan shopping and analysis for the
borrower and puts the lender and borrower together. Many of the lenders through
which the broker finds loans do not deal directly with the public (hence the
expression, “wholesale lender”).
Using a mortgage banker can save the fees of a middleman and can make the loan
process easier. A mortgage banker can give you direct loan approval, whereas a
broker gives you information second-hand. However, many mortgage banks are
limited in what they can offer, which is essentially their own product. In
addition, if you present your loan application in a poor light, you’ve already
made a bad impression. I am not suggesting you lie or mislead a lender, but
understand that presenting a loan to a lender is like presenting your taxes to
the IRS; there are many ways to do it, all of which are valid and legal. Using a
mortgage broker allows you to present a loan application to a different lender
in a different light (and you are a “fresh” face).
A mortgage broker charges a fee for his service, but has access to a wide
variety of loan programs. He also may have knowledge of how to present your loan
application to different lenders for approval. Some mortgage bankers also broker
loans. As an investor it is wise to have both a mortgage broker and a mortgage
banker on your team.
SIDE NOTE: MORTGAGE BROKERING. Keep in mind that mortgage brokering is an
unlicensed profession in many states. If there is no licensing agency to
complain to in your state, make sure you have personal references before you do
business with a mortgage broker.
Choosing A Lender
Choosing a lender that you want to work with involves several factors, not the
least of which is an open mind. You need a lender that can bend the rules a
little when you need it and get the job done on a deadline. You need a lender
that is large enough to have pull, but small enough to give you personal
attention. And, most of all, you need a lender that can deliver what it
promises.
1. Length of Time in Business
Since the mortgage brokering business is not highly regulated in most states,
there are a lot of “fly-by-night” operations. Bad news travels faster than good
news in business, so bad mortgage brokers don’t last too long. Look for a
company that has been in business for a few years. Check out the company’s
history with your local Better Business Bureau. If mortgage brokers are licensed
with your state, check to see if any complaints or investigations were made
against them. Also, ask for referrals from other investors and real estate
agents.
2. Company Size
A company that is too big can be problematic because of high employee
turnaround. Also, the proverbial “buck” gets passed around a lot. If you are
dealing with a mortgage broker, it is often a one-person operation. Dealing with
a one-man operation may be good in terms of communication if he or she is a
“go-getter.” On the other hand, the individual may be hard to get a hold of,
since he or she is answering the phone all day.
A small to mid-sized company is a good bet. You will be able to get the boss on
the phone, but he or she will have a good support staff to handle the minor
details. Also, a mid-sized company may have access to more wholesale lenders
than a one-person company.
3. Experience in Investment Properties
It is important to deal with a mortgage broker or banker that has experience
with investor loans. Owner-occupant loans are entirely different than investor
loans. And, it is important that the broker or lender you are dealing with has a
number of different programs. It is often the case that you find out a
particular loan program won’t work, in which case you need to switch lenders (or
loan programs) in a heartbeat to meet a funding deadline.
Bio:
William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney,
author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real
estate since 1990, having been involved in over 600 transactions. He has
appeared as a guest on numerous radio and television talk shows including CNBC
Power Lunch. He has been featured in Who's Who in American Business, Money
Magazine, the Los Angeles Times and the Denver Business Journal. William
Bronchick has served as President of the Colorado Association of Real Estate
Investors since 1996.