Brokers, Lenders, Banks: What’s the Difference?

As a first-time homebuyer, you might think any mortgage company is the same as any other. But that is not actually the case. While researching the different mortgage companies that serve your area, you will soon discover that some are referred to as mortgage brokers, while others are referred to as mortgage lenders. Banks also provide mortgages.

What is the difference between each of these? Let’s define brokers, lenders and bankers in detail.

What is a Lender?

A mortgage lender is a company that directly finances the purchase of real estate. In this way, a lender is similar to a bank, but with a wider variety of loan options available. Companies that originate loans may sometimes service those loans for the duration of their lifetimes. Other times, they may ultimately sell them, and another lender will take over servicing the loan.  

What is a Bank?

You know what a bank is, in general terms—it is an institution where you can store or borrow money.  When we are talking about real estate, a bank’s role is similar to that of a lender, but more restrictive. There may not be as many lending products available, and usually a bank will be more demanding when it comes to your credit score. Banks also tend to be less flexible about special income situations (i.e. self-employment). Unlike a mortgage originating lender, a bank is unlikely to sell your loan.

 What is a Broker?

A mortgage broker, unlike a mortgage lender, does not originate loans directly. Instead, the broker acts as a third party, connecting borrowers with other lenders.  Mortgage brokers may have hundreds of lenders in their networks. When a borrower applies for a mortgage, the broker checks around for the best rates and terms, and then brings those offers directly to the borrower.

What Advantages Does a Broker Offer Compared to a Bank or Lender?

1. Save time. If you are determined to find the most competitive mortgage rates, then you are going to need to shop around. Imagine trying to call dozens of mortgage lenders and banks in your area for quotes. Think how many hours you would spend on that. And at the end of it all, you still might be missing out on the best deals in your area. A mortgage broker can rapidly take care of that search on your behalf, saving you tons of time and effort. And with a network of hundreds of lenders, they are sure to catch the best deals for you.
2. Save money. Since a mortgage broker can bring you competitive rates, you will be saving money over the lifetime of your loan. But working with a broker is more cost-effective in a another way as well. Mortgage brokers charge much lower fees. Lender commissions can range up to around 5-6% of the amount of the loan. The same is true for the big banks as well. Think about that for a moment. If you borrow $300,000 to buy a home, a lender’s fees might total $15,000 or more. Mortgage brokers, on the other hand, make around 2-2.5% in commissions—roughly have, or even less, of what lenders make. That can add up to thousands of dollars in savings for homebuyers. Why are lender commissions so high compared to brokers? It is usually because the lenders have higher operating expenses. Brokers often operate with a more lightweight model, so we can pass the savings onto the customer. 
3. Enjoy the fullest flexibility. Finally, one more reason to go with a broker instead of a bank or lender is for the flexibility of the mortgage process and the widest possible range of lending products. Banks especially have rigid processes, and a limited selection of products. If they cannot match a customer with a suitable product, they will usually just show them the door. A broker does not have to operate that way. We can look through our network until we find the right lending product to help you overcome your obstacles. That way, regardless of your scenario, you can move forward with your home purchase or refinance. As you might guess, this also tends to result in much better customer service. The big banks just want to know if they can hurry up and approve you for a loan or get you out the door. Brokers take time to really listen to you, understand your needs, and work with you until you get an ideal loan.

How McGowan Mortgages Can Help You Buy a Home

 McGowan Mortgages is a broker that works with more than 200 mortgage lenders and banks. With our massive network, it is easy for us to match you with a suitable loan in 40 different states. Whether you are in Missouri, where we are based, or elsewhere in the US, we can’t wait to help you save time and money and move into your new home with an ideal mortgage.  If you are ready to get started, please give us a call today at (816) 631-9687 to schedule your home loan consultation.