What’s the Difference Between a Mortgage Banker and a Mortgage Broker?

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Over the last decade, there has been a major shift in who does what in the lending world. It’s possible that before the financial crisis in 2008, there were a lot more mortgage brokers than there are today. But as new regulations have come out with the Dodd-Frank Act, there has been an increasing discrepancy between a mortgage banker and a mortgage broker.

As a residential real estate investor, you need to determine the best places to find financing—and that involves weighing the issue of mortgage banker vs mortgage broker. A loan officer at a traditional bank or a credit union isn’t usually the best place to start. A mortgage broker or mortgage banker has many more advantages as far as finding niche products. Not only are they usually localized in your market, they typically offer the competitive advantage of being able to get creative with financing and solutions.

Both mortgage bankers and mortgage brokers can close quickly, which is an advantage in purchasing property—as it adds another dimension to offers for purchase. But which one is best for your particular needs?

Even though there are some similarities with the names and overlap with what they do, a mortgage banker and mortgage broker aren’t the same. Borrowers will need to choose the right one for their specific financial needs. They are, however, your best options over a traditional bank home loan.

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What’s a mortgage banker?

A mortgage banker is a type of mortgage lender that specializes in the service. Mortgage banks are typically started with a warehouse line of credit from a big bank, and their sole job is to originate mortgage loans. Eventually, a mortgage bank will use its own capital to lend to the consumer. Some examples of mortgage banks are Stearns Lending and Quicken Loans.

The pros

When a mortgage banker originates a loan, they have the same advantages as banks, including competitive rates. They usually also have in-house underwriting, which allows them to close loans quicker. They also have local appraisers who know the market better and often have more products to get into niche loans.

Mortgage bankers also usually focus on similar products as banks, but in many cases, they have the ability to broker out their atypical loans to other mortgage banks as well. Mortgage bankers have the ability to dig deep and find hard money lenders and private investors to broker their loans to.

The cons

On the other hand, there are two main disadvantages of mortgage bankers. They have no physical presence for servicing issues since they lend their own money, and they offer no other financial products. The mortgage process can be more laborious, because they lack some ability to personalize. If you want a one-stop-shop, you’d have to get those services from another financial institution. Plus, they won’t know the area you’re looking to buy into personally because they lack that knowledge.

Which buyers are mortgage bankers best for?

Because of all this, mortgage bankers are best for people who are solely looking for a mortgage. No matter the type, a banker will have the knowledge you’re looking for. Because this is their specialty, they’ll be able to tell you exactly which options are the best for you.

What’s a mortgage broker?

A mortgage broker is an individual who works for an autonomous real estate organization that brokers a bank or mortgage bank’s money. Basically, brokers are the middlemen between someone who’s looking to buy or refinance a property and the mortgage companies. They are not a direct lender, and do not use their own funds.

A broker can have one relationship or as many as they want with banks regarding who they do business with. They are often required to be licensed by a state’s department of real estate and the Nationwide Mortgage Licensing System and Registry (NMLSR). This means they’ll be able to help you get the best kinds of loans they have available, whereas working with a particular bank limits your options.

The pros

Some advantages of mortgage brokers include a wide variety of loan programs and products, competitive wholesale rates, and typically a local presence. They make worth a variety of types of lenders. This means they could have a stronger understanding of a local market, and can better advise you on products like FHA and USDA loans.

Because mortgage brokers work with a broad variety of lenders, they can often find you lower rates and better loan products. If you have bad credit or are a first-time home buyer, shopping via a broker can result in the best mortgage rates available for your situation.

Some lenders also exclusively work with brokers, so they may able to get loan applicants deals you’d otherwise never have access to. They can also help you manage the different fees that come along with the whole process.

The cons

On the other hand, disadvantages of mortgage brokers include non-localized underwriting and no other financial products. Just like mortgage bankers in this sense, they specialize in this one aspect of banking, so if you need other services, you’ll have to look elsewhere.

Also, because some brokers have those exclusive partnerships with lenders, they benefit from working with them. So they may steer you toward options that don’t give you the best rate to benefit themselves. On top of that, you may have to pay a broker’s fee.

Which buyers are mortgage brokers best for?

A mortgage broker may be best for you if you don’t know the area you’re moving into that well. Especially for those new to investing, it’s important to do your due diligence before making such a big commitment.

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Mortgage banker vs mortgage broker: Who scores the better deal?

In the ultimate mortgage banker vs. mortgage broker battle, it’s really up to you to decide which one is better—and you should absolutely shop around for different lenders, no matter whether you’re buying new or refinancing. But a mortgage broker may not get you a better deal purely because of wanting to secure their own interests, meaning you could pay higher interest rates. Although, for some people, paying the extra money is worth it if they get the kind of help they need.

Traditional banks are probably not the best place to start when finding a mortgage for an investment property. A mortgage broker or a mortgage banker has many more advantages as far as finding niche products. They are usually localized in your market and offer the competitive advantage of getting creative with financing and solutions. Both can close quickly, which is an advantage in purchasing property—as it adds another dimension to offers for purchase.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.