Understanding the Difference between a Mortgage Banker, Mortgage Broker, and a Bank

Purchasing a home can be a perplexing process; there are so many different people you have to deal with during the transaction, from a real estate agent to a title company to a lender. When it comes to choosing a lender, a buyer also has the question of whether they want to go with a mortgage banker, mortgage broker, or a bank. You might be asking yourself, “What is the difference?” Understanding the difference could be the key to saving thousands of dollars when you are purchasing a home.
A mortgage banker fund their loans from a warehouse line of credit and after the transaction closes, the loan might be sold to an investor; which could include Freddie Mac or Fannie Mae or Ginnie Mae or private sources. A mortgage banker concentrates solely on mortgage products and usually has the ability to lend on many different levels, including conventional loans, FHA (Federal Housing Administration) loans, VA (Department of Veteran Affairs) loans, jumbo loans of $417,000 or higher, and USDA (United States Department of Agriculture) loans. An advantage to working with a mortgage banker is that the loan processing and underwriting is usually done in-house and is therefore, a more seamless process. They are able to offer competitive interest rates, as well as a variety of loan options.

A mortgage broker is someone who sells loan products on behalf of a variety of lenders. The mortgage broker does not provide the funds for the loan, but rather, the actual lender does. A mortgage broker is keen on all of the loan products available through different lenders and will guide a home buyer to the best option. They are able to offer competitive rates and some might have access to non-traditional lending programs. The loan processing and underwriting is done by the lender as well as the servicing of the loan. A mortgage broker can offer a variety of loans such as, conventional, FHA, VA, jumbo, and sometimes USDA.

A bank is an actual brick and mortar building where all types of banking needs are managed. Banks are required to use a percentage of their deposits for lending purposes, such as auto, personal, and mortgage loans. A loan officer at the bank might be versed in other areas besides mortgage lending. A bank is able to offer competitive rates; however, is limited to the mortgage products that are offered through its institution. A disadvantage is that a bank usually has more conservative lending guidelines and in some cases, customer service could be an issue.

A home buyer must weigh all their options and understand that it really comes down to which mortgage banker, mortgage broker, or bank can get the mortgage processed for the least amount of fees. Keep in mind that banks are limited to their own portfolio, while Mortgage Brokers and Bankers might have lower operating costs and profit margins. So don’t rule out a mortgage broker or mortgage banker when shopping for a mortgage.