A mortgage is a loan made to purchase, own, or renovate real estate, which will then be paid overtime with interest as agreed by both the lender and borrower. The property being acquired will serve as collateral for the loan. With the real estate market being highly competitive and with numerous options available for mortgage-seekers, it is essential to have an advisor to help make the best decisions.
Both mortgage brokers and bankers are considered real estate agents as both are involved in acquiring property. They may have the same goal of helping clients obtain real estate, but the nature of their function is entirely different. This article will cover how a mortgage broker differs from a mortgage banker and some helpful information you need to know about the real estate market.
Table of Contents
Real estate
It is land along with any attached infrastructure. It is a form of real property.
Mortgage
It is an arrangement between a lender and a borrower that gives the loan specialist the option to take the property if the agreed loan and interest rate are paid.
Interest rate
The lender charges the interest to a mortgage loan. It is calculated as a percentage of the total loan amount.
What exactly does a mortgage broker do?
A mortgage broker is a third-party financial intermediary licensed to service the customer to find the right mortgage loan. Mortgage brokers serve as independent consultants that work with both parties, the lender and the borrower, for a real estate deal. From house renovation to new real estate property acquisition, mortgage brokers can help these transactions. A mortgage broker helps borrowers connect with lenders. Mortgage brokers are licensed to transact with different lenders and refer a home loan or any real estate loan that best fits the client’s financial capacity. Mortgage brokers help minimize the cost of the client doing their research and looking for different listings in the market. Through their network, research, and exposure in the real estate market, mortgage brokers have access to various lenders to refer to their clients. The mortgage broker also acts as the middleman in preparing the paperwork and documentation for the loan. They have to be aware of their client’s credit history to find the best deal in the market that suits their customer. It is also the mortgage broker’s responsibility to ensure their client has a good credit standing, an ideal financial situation, and can finance the loan.
Responsibilities of a mortgage broker
Save time and effort – with hundreds of mortgage listings available in the market, and it is a challenging task to look for a suitable offer for every client. Through a mortgage broker, one can have access to all options available in the market. A mortgage broker can save time and effort since they know the market more than the individual client.
Bring the best offer to the table – the mortgage broker should recommend the best loan option that fits the client’s financial capacity and best interests.
Responsive to customers’ needs – a mortgage advisor has to be responsive and dedicated to providing the client’s needs.
Guarantee proper documentation – ensuring the legality and completeness of the paperwork is another responsibility of the mortgage broker. The mortgage broker acts as a verifier of the client’s credit information before seeking lenders.
Protect client’s interests – the mortgage broker must protect their client from the different deceiving schemes existing in the market. It is the mortgage broker’s responsibility to authenticate offers and avoid fraudulent ones.
Do mortgage brokers charge?
A mortgage broker may also charge fees for the assistance they provide throughout the transaction. The client needs to clarify the costs they need to settle with their mortgage broker before onboarding with the process. According to Forbes, in their article “Should You Work With A Mortgage Broker?” mortgage brokers get paid in two ways: through fees paid by borrowers or commissions paid by lenders.
- The borrower and range pay borrower fees from 1% to 2% of the total loan amount. They can be delivered as a lump sum at closing but are sometimes rolled into the total loan amount or otherwise incorporated into loan fees.
- Lender commissions may range from 0.50% to 2.75% of the total loan amount and are paid by the lender after closing. When lenders pay commissions to brokers, they typically pass these costs on to borrowers by building them into the loan cost.
What is a mortgage banker?
A mortgage bank is an individual or company that begins or starts home loans. Mortgage bankers could be people or huge organizations. Many home loan investors produce income by charging borrowers an origination fee. A mortgage banker is a real estate agent that serves as the originator of the mortgage. They loan their funds to approved borrowers. Mortgage bankers provide loan options with interest rates that borrowers can choose from. Mortgage bankers can be individuals or a company that lends for a home loan or any real estate loan. The loan amount a mortgage bank can approve will highly depend on the borrower’s credit history and financial capacity. Mortgage bankers offer different loan options with varying rates of interest to make money.
The Corporate Finance institute lists down the responsibilities and characteristics of a mortgage banker below:
- Mortgage bankers facilitate loan originations for the financial institution they are employed by, whereas brokers are independent professionals operating in the real estate financing space.
- In terms of flexibility, mortgage bankers are less flexible, as they are employed by a financial institution and can only provide financing options to the clients that the institution underlines.
- Looking from a borrower’s perspective, the reliability is more excellent on a mortgage banker, as he is employed by a well-known company specializing in mortgage loans. The company pays the banker a salary, so he will likely work in the company’s best interest and borrower.
- Lastly, in terms of compensation structure, bankers work on a fixed salary structure, along with any associated fees or performance-based bonuses.
In her article, “What is a Mortgage Banker,” Sarah Sharkey lists down the three leading roles of a Mortgage banker:
Originate loans
Mortgage bankers have a range of loans to offer, but some can specialize in particular types of loans, such as jumbo loans, VA loans, or unusual financing options.
Service loans
Once the loan closes, your mortgage banker might also service your loan, meaning manage the repayment process and assist you if you need help with repayment.
Sell loans
Mortgage bankers can also sell your mortgage or the rights to service your mortgage on the secondary market. Mortgage bankers do this to free up more capital to make more loans to more borrowers.
When shoppers purchase or renegotiate a home, a first step is frequently to an advance official in a nearby bank, credit association, or home loan broker. A loan officer offers projects and home loan rates from a solitary establishment. As a rule, they can provide advances with and interest programs from their specific establishment. Loan officers fill in as the home loan moneylender’s business power. They ordinarily acquire commissions for originating loans, and the costs they charge may not be debatable. They can sell items offered by their employer.
Broker vs. Banker
To wrap up the discussion between the difference between a mortgage broker and a mortgage banker, kindly refer to the below points:
- Mortgage brokers and mortgage bankers have licensed real estate agents providing services to individual or business clients.
- A mortgage broker is an intermediary between lenders and borrowers in the real estate market, whereas a mortgage banker provides loans to pay mortgages.
- Mortgage brokers help clients find the best deals in the market.
- Mortgage bankers offer different loan options with varying amounts of interest.
- According to the Corporate Finance Institute, mortgage bankers risk their capital to fund loans in loan origination. Also, they are not required to disclose the price at which they sell mortgages. Mortgage brokers originate loans in the name of financial institutions and organizations. They need to disclose the additional fee(s) charged to the consumer under federal and state laws regarding full disclosure.
Is a mortgage broker worth it?
The question of seeking the services of a mortgage broker depends heavily on the type of client. If the client is independent enough to search the market for mortgages and lenders who can offer them different loan products, a mortgage broker’s services might not be utilized. But if the client would want to have access to many lenders who provide other loans, they must work with a mortgage broker. Some banks work only with mortgage brokers and depend on them to bring reasonable customers to the table. Some banks are also inaccessible to those plans of getting a retail home loan. Mortgage brokers may likewise have the option to get special rates from banks because of the volume of business produced.
The Money Advice Service recommends getting advice from a mortgage broker with the reasons explained below:
Getting advice, rather than researching on your own, means that if the mortgage turns out to be unsuitable for you, later on, you’ll have more rights when you make a complaint. If you don’t take advice, you could end up:
- Making a costly mistake in the long run with a bad mortgage situation or
- Your chosen lender was rejected because you didn’t understand the restrictions clearly or what circ*mstances the mortgage was designed for.
