There are many places to get a mortgage, you can go to a bank, mortgage lender or a mortgage broker. How do you know where to start? What's the difference? One of the best places is to get a referral from your realtor and from family and friends. Talk to different loan officers and see who you are comfortable with. Make sure the lender you pick has the programs you need. So what is the difference?
A bank is simply that – an institution that lends money, usually with conventional, FHA, VA and USDA programs. Some do not have any options besides conventional financing. Typically a bank may be more conservative, but not always. Some banks may have their own programs that can be less conservative than normal conventional loans. A bank will usually underwrite and close your loan in their own name and will usually service the loan. Examples are Wells Fargo, US Bank, Citibank, etc.
A mortgage banker is very similar to a bank. They have correspondent relationships with banks. They will underwrite the loan and close it in their name, after closing the loan is usually sold off to a bank for the servicing of the mortgage. The benefit to a mortgage banker is that they have more than one bank that they work with, usually have many different options for your loan. The rates may be lower due to reduced overhead. Because they work with many different lenders, they may have the ability to get a mortgage done that your bank may not be able to.
A mortgage broker is similar to a mortgage banker, with several options for loans, however the big difference is they do not undewrite the loan, they usually do not close the loan in their name. A broker has to send the file to underwriting and can't control the turntime. They also do not close the loan and have to rely on the bank that is underwriting it to close the file. The servicing after closing is usually done by the company (bank) that underwrote the loan.
Does it matter who does your loan? Maybe. Some times a broker may have a better interest rate but may have higher closing costs. Sometimes the mortgage banker has the best rates and they also have the ability to ask to get rushes done if need be. I have done all three (been a banker, mortgage banker and a few times brokered out my loans). Of all three, being a mortgage banker has given me the best control of the file, usually very competitive interest rates and the ability to get a file closed quickly. I have many options and know which direction to send a file – maybe something about that file means it needs a Freddie Mac lender over a Fannie Mae lender. My problem with being a broker is the loss of control! I want to know that I have co-workers I can call if there is a problem or I need something done in a hurry.
How do you know if you are working with a banker vs a broker? Ask questions. The first question is where is the underwriting done? Is it done in house or do you send it to another lender for underwriting? How long have you been in business? Is the company FHA approved? (That means HUD has approved the lender). How many programs do you offer? Do they have the programs you need? Usually brokers are not approved to do first time homebuyer programs like MN Housing and Dakota County bond programs.
Once you have talked to a couple different loan officers, decide who you are most comfortable with. You have to give them a lot of information and you are relying on them to get your mortgage done on time to close. You want to make sure you do not have issues at closing so you can move into your new home!