Are brokers or lenders better?

Many homebuyers don't understand the difference between mortgage brokers and mortgage bankers. It's not hard to see why since they both sell loans.

The main difference between brokers and lenders is that lenders fund the loans directly while brokers may sell loans from many different lenders. Both are looking to help their customers while at the same time making a profit.

Why choose one over the other?

Brokers track the continuously changing wholesale mortgage market, looking for loan terms that will benefit their clients. Brokers typically have a specific borrower profile that they specialize in. For these borrowers brokers will generally have access to a wider array of loan products than a lender, so they might be able to offer more options. But if the borrower does not fit the broker's typical profile, the broker may compete less vigorously for the borrower?s business.

Lenders historically have sold only loans funded directly by their financial institutions. Recently lenders and their loan officers have begun acting like brokers, selling loans on behalf of other institutions or utilizing different divisions of their company for different borrower profiles.

When shopping for a lender or a broker, keep the following in mind:

People should treat all the potential mortgage outlets in the same way. It doesn't matter if you are working with a lender or a broker, you're shopping for two things: price and customer service.

For those hoping to get the best price and service, shopping around is a must. Borrowers should go into the process with a good sense of what they want. The more precisely the borrower knows their circumstances and can define themselves for the broker or lender, the more efficient the process will be for everyone involved.

While both brokers and lenders are looking to make a profit on the loans they sell, they are required to display their profits differently.

Brokers must show their markups in the Good Faith Estimate Settlement (GFE) but all markups aren't always displayed in the same way. Payments to the mortgage broker from the lender are disclosed differently than straight markups. Markups by the broker are displayed in the GFE as a Mortgage Broker Fee. Fees paid to the broker from the lender are typically footnoted or are a parenthetical statement, which makes them difficult to see. Mortgage brokers typically make their largest markups on loans where they are compensated by the lender rather than by the borrower.

On the other hand, lenders don't have to disclose markups. Lender markups are part of their internal record keeping which the lender isn't required to share with the borrower.

Mortgage lenders and brokers are required to be licensed in the States they operate. Make sure your lender or mortgage broker is legitimate and properly licensed before doing business with them. Any mortgage broker or lender that has allowed their license to lapse is a warning sign for you to take your business elsewhere.

You can use organizations such as the Better Business Bureau to help verify credibility.

But keep in mind the big picture when you're shopping around:

It is actually more important to choose a good loan officer, rather than decide if a broker or lender is best. Loan officers have two jobs: One is to be your advocate in getting the loan approved. The other is to deliver quality loans. You want someone who has proven dependable and ethical in the past and specifically someone you can trust.

And the best way to be fully protected is to shop for the best terms. Then you don't have to worry about the broker's markup, or whether or not you are dealing with a broker or a lender.