Mortgage Brokers vs. Banks

There are a variety of different ways to finance a mortgage, but I’d like to focus on two specific channels, “mortgage brokers versus banks.”

There are mortgage brokers, who work as middlemen between banks/mortgage lenders and borrowers on the wholesale end to secure financing for homeowners. And there are banks and lenders that work directly with homeowners to provide financing on the retail level.

Mortgage brokers are a big part of the mortgage business, accounting for more than 10 percent of all home loan originations.

In fact, their share of the mortgage pie was as high as 30 percent during the mortgage boom, but fell precipitously after the mortgage crisis ensued.

But brokers still serve a valuable role in the industry, and can be quite beneficial for both prospective homeowners and those looking to refinance.

Pros and Cons to Both

There are pros and cons to both, and sometimes you will have little choice between the two if you have poor credit or a tricky loan scenario.

The majority of homeowners turn to banks when it comes time to get a mortgage. They are the most obvious choice, mainly because home loan services are usually offered at the customer’s primary banking institution.

However, borrowers who have trouble qualifying or need to finance tricky deals will often get turned away at banks. So for these people, using a mortgage broker is often the next best option.

Of course, pricing with mortgage brokers can be just as competitive as a bank, so long as the broker doesn’t take too much off the top. Wholesale rates can actually be much cheaper than retail interest rates you’ll get with banks.

For example, I know a mortgage consultant who works at a Wells Fargo retail bank branch (example of using a bank directly), and her rates are much higher than Wells Fargo’s wholesale division.  And the only way you can access their wholesale rates is through a mortgage broker.

Of course, most borrowers will attempt to secure financing with their local bank or credit union before turning to a mortgage broker. Banks are seemingly the more trusted and familiar choice, and often provide borrowers with discounts based on a pre-established relationship.

Because the bank already knows a good deal of information about the client, such as the balance of the borrower’s checking and savings accounts, qualifying can be easier and may result in a lower rate.

A broker will only be able to verify such information with the borrower’s cooperation, and may choose not to provide certain information to the lender. This lack of information (stated income loan) could lead to a higher interest rate.

Pros of working directly with a bank:

– Build off existing relationship (discounts if you have a checking/saving account)
– You already know the banker who will handle your mortgage
– Perhaps more trustworthy, more accountable than a smaller shop
– Lower interest rates in some cases
– Ability to add mortgage to existing banking profile and make automatic payments from linked accounts

Cons of working with a bank:

– Conservative loan programs
– Do not disclose the yield-spread premium
– Lengthy process, very bureaucratic
– False promises
– They make mistakes
– May overcharge you (commission doesn’t need to be disclosed)
– Incompetence (poorly educated about the home loan process in some cases if they’re just general bankers or customer service types)

Pros of working with a mortgage broker:

– They do all the legwork for you, working on your behalf with the lender
– They compare wholesale mortgage rates from a large number of banks and lenders all at once
– Wholesale interest rates can be lower than retail (bank branch) interest rates
– You get more loan options because they work with numerous banks and lenders
– Brokers can finance tricky deals because of their knowledge and various lending partners
– Are typically easier to get in contact with, less bureaucratic

Cons of working with a mortgage broker:

– They make mistakes like anyone else
– May overcharge you (how mortgage brokers make money)
– False promises to get your business
– Incompetence (poorly educated about the home loan process in some cases if newbies)
– May not have access to programs with select banks (approval varies considerably)

That said, your experience can really vary based on who you choose to work with, as some banks and lenders may overcharge you and give you the run-around, while a mortgage broker may do an excellent job and secure a lower mortgage rate for you. And vice versa. It really depends on your situation and the specific bank or broker you ultimately work with, so be sure to shop around and ask for references.

Not all mortgage brokers are good or bad, and the same is true with banks. However, one benefit of using a broker is that the experience is probably a lot more consistent because it’s just one person (and their team), as opposed to a large bank with thousands of employees.

Many mortgage brokers are mom-and-pop shops, so it’s easy to get someone on the phone or speak in person.

Most of them provide personal service, meaning you’ll have a direct phone number to reach them, and can even visit them in their office if you have questions. You might not find the same level of service at the big banks…

So if you want someone to guide you through the loan process, a mortgage broker may be a good choice for you. They also tend to hustle a bit more with their commission on the line.

To sum it up, mortgage brokers can be a good option if you’re shopping for a loan, but you should always compare their rates and service to those at your local bank and credit union, just to be sure.

Read more: How to get the best mortgage rate.


52 Comments

  1. H April 19, 2013 at 1:06 pm -

    Is it possible to refinance out of a wholesale mortgage?

  2. Colin Robertson April 20, 2013 at 11:42 am -

    Yes. It doesn’t matter if the mortgage comes from a mortgage broker (wholesale) or via a retail bank. That won’t affect your ability to refinance the loan. And if you originally used a broker, you can refinance with a retail bank. Or vice versa. So shop around!

  3. Ike June 26, 2013 at 10:19 pm -

    I tried both the bank and broker route, and found that the broker I wound up working with was more personable, helpful, and he got me a lower rate. Just my two cents, I’m sure the experience can vary.

  4. Carl July 9, 2013 at 5:13 am -

    Thanks for showing the positive side of working with a broker. Yes, there are still good reasons to choose a broker over a bank, despite the former being public enemy #1 after the mortgage bust.

  5. Leroy July 30, 2013 at 5:10 pm -

    I prefer the personal attention and reliability of working with a broker. I can call mine up night and day. The banks don’t care about customers these days. They’ll promise everything upfront, and then are nowhere to be found when it comes time to get the deal done. The downside is that brokers are sometimes the pricier option.

  6. Darryl August 15, 2013 at 10:53 am -

    I’ve been using the same broker for years. He always has access to the best loan programs, and keeps abreast of the latest industry regulations so I don’t have to worry about getting approved for my mortgage, regardless of the underwriting changes that take place. And his pricing is always competitive. Why deal with a bank when you have your own concierge service?

  7. Eddie August 21, 2013 at 11:51 pm -

    Do brokers still exist? I heard their market share fell to another all-time low. Soon a retail bank will be your one and only choice for a mortgage.

  8. Lincoln September 9, 2013 at 4:33 pm -

    I used a broker up until my last refinance when I found better pricing at the retail level. Still loved his knowledge and ability to shop on my behalf, but a lower rate is a lower rate…

  9. Emilio September 16, 2013 at 2:40 pm -

    Try getting a banker to call you back when you need to lock your rate, or guide you through a difficult approval. Most of them rely on a computer to tell them what to do.

  10. Nico November 15, 2013 at 7:29 pm -

    I lost my job a few months back and as a result I became delinquent on my current FHA mtg (3mos) and 1 month behind on my car note. This lowered my score from 700s to low 600s. I got a really good job offer and start next month. I want to buy a home in my neighborhood that is a really good deal. seller will not do seller financing. Can I still get a mortgage?

  11. Colin Robertson November 17, 2013 at 8:06 pm -

    Nico,

    Speak with a broker or two to see if they work with any lenders that can help you. It’s generally pretty difficult to get a mortgage with recent mortgage delinquencies and gaps in employment, but take the time to look around to see if anyone can make it happen.

  12. GL February 26, 2014 at 10:54 am -

    My home is financed by a seller through his IRA plan. I am behind on my payments due to loss of job and about to go in foreclosure. I have contacted many mortgage companies, securing help, but since home is financed through sellers IRA, no one can assist me. Can you give me some insight. time is running out. Presently, I am in a temporary position and salary is low-scale.

  13. Colin Robertson February 26, 2014 at 3:43 pm -

    GL,

    What have the banks or brokers you contacted said was the issue specifically? And have you tried working with the seller directly?

  14. Gilda March 17, 2014 at 10:14 am -

    I am just finishing construction of a new (second) home, and am shopping around for rates now. Does moving from a construction loan to a permanent loan necessarily make mine a complicated loan procedure? Is there any reason I should not look at mortgage brokers in this instance? And I would be looking at a “refinance” — right? not a new purchase loan? My construction lender does offer perm loans, but I feel like I can do better elsewhere. I welcome your advice.

  15. Colin Robertson March 17, 2014 at 1:11 pm -

    Gilda,

    Any loan can be complicated if don’t prepare for any potential red flags and address them accordingly beforehand. And a construction loan can certainly add more potential issues. It should be designated as a refinance if you were the owner of record of the land before securing the construction financing.

    A broker could actually be a good option in your case because they tend to know the guidelines best and can shop your rate with multiple lenders all at once to find the best pricing. But it’s generally recommended to try all routes (broker/bank/credit union) at once to ensure all options are exhausted. Simply accepting the construction lender’s rate wouldn’t give you the full picture of what else is out there.

  16. Jerry June 11, 2014 at 10:21 am -

    We are first time buyers, and I was wondering if a broker we be the better route or my bank? My wife has a score in the 720’s and mine is 680’s, if that makes a difference in your answer. Thanks

  17. Colin Robertson June 11, 2014 at 12:13 pm -

    Jerry,

    A broker could be beneficial in that they can educate you about the process while also shopping your loan program/rate with a ton of different banks. But it’s got to be an honest, knowledgeable broker, so results may vary. A bank may just write you off and/or provide little support if you run into any snags as a first-timer. If your loan is straightforward either should be fine, though you should shop around just to ensure you get good a good rate and low fees regardless!

  18. Kelly June 26, 2014 at 9:20 pm -

    Is there alot of different in big mortgage brokers (ie Aussie Home Loans) to the smaller companies? Are the bigger firms more reliable?

  19. Colin Robertson June 27, 2014 at 9:41 am -

    Kelly,

    There can be a lot of differences from company to company, and even between loan reps under the very same brokerage, so it’s hard to ever achieve a consistent experience. It also depends on you and your loan. If it’s easy, all might go well and be smooth. If it’s not as straightforward, you might have a negative experience. The best thing you can do is talk to your broker and get everything ironed out upfront, before you proceed.

  20. Sharon Moten July 17, 2014 at 1:28 pm -

    Interesting information Colin. I worked as a wholesale rep and currently employed with a bank. I googled this out of curiosity to get an idea how mortgage brokers are doing. Great information.

  21. Sharon Moten October 2, 2014 at 6:08 pm -

    Having both wholesale and retail experience; your point of view is right on! However being in the industry for over 16 years working both I find fault in what you are saying regarding big banks maybe hard to find someone to pick up the phone or give personal service. That goes both ways. It’s not the mortgage banker or the mortgage loan officer to trust; it is getting the right loan rep that truly has your best interest in mind! The money will come later.

  22. Colin Robertson October 3, 2014 at 8:32 am -

    Sharon,

    That’s true, but with a smaller brokerage or one-man shop, it’s easier to get in touch generally, than say, a large bank where you never actually meet the person or even know what they look like. But results can and will always vary. I always suggest exploring both avenues for this reason and others.

  23. christine November 10, 2014 at 4:49 pm -

    i have good credit now but my husband and I filed for bankruptcy almost a year ago due to bills encored in his previous marriage. That is what has hurt us on getting a home loan and I am tired of paying rent into a property that I am not building any equity into. Do I have a better chance for financing with a mortgage broker?

  24. Colin Robertson November 11, 2014 at 9:15 am -

    Christine,

    A broker can certainly dig a little deeper into your situation and then determine if you’ll qualify with one of their many lending partners, whereas a single bank is just a single bank with far fewer options. Additionally, a broker may have recommendations to improve your credit and/or finances to strengthen your chances of approval.

  25. Jonathan December 7, 2014 at 10:18 pm -

    We have a small mortgage on our present home which my wife inherited. We would like to sell. But we have found one that we like, but we have never bought a house and I have been self employed for 24 years. Is everyone afraid to work with the self employed and is it possible to get a mortgage when you already have one?

  26. Colin Robertson December 8, 2014 at 12:06 pm -

    Jonathan,

    Check out my page about qualifying for a mortgage. Being self-employed can make things more difficult, but shouldn’t hinder your efforts too much assuming you’ve held the position for several years and make enough money to qualify for the payment. Yes, you can get another mortgage but you will need to prove that you plan to occupy the new home, assuming you want to get an owner occupied loan.

  27. bob January 27, 2015 at 5:43 pm -

    Is it a bad idea to use a broker if you don’t want to work with a large bank? Our big bank has been horrible. We’re in the process of switching over to a local Credit Union. Do brokers work with smaller, less sleezy lenders like credit unions?

  28. Colin Robertson January 27, 2015 at 7:04 pm -

    Bob,

    Credit unions can be a great alternative to a bank, though they only have their own rates and loan programs. A broker can be good or bad depending on the individual you work with. Brokers work with a variety of different banks/lenders, from small to big. But it depends who they are approved to work with so results may vary.

  29. Bill Meloy February 4, 2015 at 3:36 pm -

    Outstanding article and discussion. You present the pros and cons for using a broker or a bank, without bias towards either choice. The banks have the advantage of more control over the process, where the brokers have the ability to search for more avenues for a particular loan. I have seen very intelligent and competent mortgage professionals in both the bank and broker sector. I do believe that brokers are going to reemerge as most large institutions are wary of offering Non QM loans.

  30. Emily N. March 25, 2015 at 9:02 am -

    Hi, Thank you for the article. I’m looking to refi….I currently have a mortgage through a credit union that my employer (a university) is affiliated with. How do I find a local mortgage broker to work with? (I don’t just want to do a random, internet search to find someone).
    thank you!
    Emily

  31. Colin Robertson March 25, 2015 at 9:14 am -

    Hi Emily,

    Generally people ask for referrals from friends and family members who have used a broker they liked working with in the past. Is there a reason you want to use a broker?

  32. Pedro M March 28, 2015 at 8:38 pm -

    My father in law co signed for mortgage for my wife and myself. We’re paying almost $300 in PMI and are currently at 4.375% on a 30 fixed FHA. Now I wanna get him off the hook. My bank is telling me with a streamline they can give us 3.75% and drop down the PMI due to a new program with no cost or fees. It sounds too good to be true, but I received an email stating exactly that. I was told I could save $300+ a month and they won’t restart the loan, it’ll just continue. My broker said he can lower my payment $150 a month a get 4% rate for $1800 which he could roll into the mortgage. What should I do? When I asked the rep at my bank how is it possible to get such a great deal, he basically told me they were willing to do it so they can basically keep my business and collect my interest. I love that he was being honest, but am I missing something? Is this even possible?

  33. Colin Robertson March 30, 2015 at 11:03 am -

    Pedro,

    One thing to consider is that the mortgage insurance may be in force for the life of the new loan due to new changes at the FHA.

  34. Sam April 2, 2015 at 6:27 am -

    I’m a 28 year old, 1st time buyer and I’m terrified. Does anyone have any computer resources I should read. To become more understanding of this mortgage process.

  35. Colin Robertson April 2, 2015 at 11:31 am -

    Sam,

    Hopefully my site has enlightened you somewhat. Keep researching and reading all you’ll get the hang of it. Good luck!

  36. Shaw April 8, 2015 at 10:55 am -

    Hi Colin, Thanks for the article. I have a situation where I am getting conflicting information. We have a property that is in an irrevocable trust. We need to get some funding to take care of an elder parent. The trustee tells me that it is not possible to refinance a property in an irrevocable trust, therefore she wants to sell the house. So I am trying to educate myself and I am researching online. I have spoken with a credit union that says it is possible to refi. And I have spoken with a broker who said it may be possible but could be very difficult. I would rather refi and retain ownership for as long as possible. We could always sell later as needed. If you have any thoughts or advice, I would appreciate your reply.

    Thanks … Shaw

  37. Colin Robertson April 8, 2015 at 12:52 pm -

    Hey Shaw,

    It might be helpful to speak with a few banks/brokers and find one that has done it before. I’m pretty sure not all lenders will do it.

  38. Drew April 13, 2015 at 2:59 pm -

    Thanks Colin for all the good advice !!!

  39. Van April 21, 2015 at 9:58 am -

    hey colin, thanks for the article. I have a question ? It’s possible to mortgage 2 houses with 2 different banks/lenders ? Last year i and my brothers bought a house but later we moved out to apartment leaving the house to my sister’s family. we still pay the mortgage and my sister gives back the money every month. Now we like to buy another small house for me and my brothers. Is it possible to mortgage 2 houses with 2 different banks/lenders ? can i ? Thanks a lot Colin.

  40. Colin Robertson April 21, 2015 at 12:31 pm -

    Hi Van,

    It’s possible to have two mortgages from two different banks on two different properties, but one will be designated as a second home or investment property and the one you live in will be primary.

  41. Tim June 2, 2015 at 9:11 am -

    Hi Colin,

    In 2013 I took a job out of state that required me to relocate. I paid my regular mortgage all while renting a home in the new state I resided. I placed the house for sale because I could not afford to pay both the mortgage and the rent. Once up for sale I could only get offers 50% below what I owed so I was forced to short sale the house. It has been 1 1/2 years since the foreclosure finalized and my payment history in the past 3 years is flawless (except the foreclosure). I currently have a 681 credit score and climbing. Is there any hope to be approved for a mortgage?

  42. Colin Robertson June 3, 2015 at 4:27 pm -

    Tim,

    Potentially, though you may have to go through a portfolio lender that allows recent short sale activity, meaning interest rate will likely be higher.

  43. Jonathan June 6, 2015 at 9:44 pm -

    Hi Colin, great article lining up the pros and cons in a very balanced fashion. This is probably a silly question, but we are moving from Portland, OR to the Seattle area… should we be looking for lenders/brokers in the area we are moving to, or where we live now for convenience? Furthermore, we are self-employed but have great credit. Is a mortgage broker our best option? Your tips and suggestions are greatly appreciated. Thank you for your advice!

  44. Colin Robertson June 8, 2015 at 6:55 pm -

    Jonathan,

    As the article suggests, you can go either route, though if you use a broker you might want someone local that you can meet up with to discuss your finances. Self employment isn’t a huge issue if you’ve been doing it for a while and you make decent income (and have good credit). Compare pros and cons of both along with rates and costs. Good luck.

  45. William June 18, 2015 at 5:24 pm -

    Colin, do mortgage brokers still exist?

    I am in the process of buying a home, but private lenders

    are telling me they don’t exist anymore after the real estate

    bubble. I am skeptical and leery. Can you advise? I am in

    Florida. Thanks.

  46. Colin Robertson June 18, 2015 at 10:12 pm -

    William,

    They exist…they nearly went extinct but have since come back and are gaining market share once again.

  47. Rick June 22, 2015 at 9:06 pm -

    Colin,

    The problem I’m confronting is not choosing a broker vs. a bank. It’s finding a lender I won’t regret doing business with. Most of the reviews I read online — both for banks/credit unions and for wholesale lenders that a broker I spoke to says he often uses — seem to be one-star tales of woe about how horrible the customer service is: payments not credited, errors made, rude or uninterested customer service people, inability to even get anyone on the phone. I’m reluctant to put myself in a position where I’d have to deal with that kind of aggravation, even if the loan is cheaper. Are there any lenders who are known to provide good customer service — and have reviews to prove it?

  48. Colin Robertson June 23, 2015 at 8:03 am -

    Rick,

    Welcome to the wonderful world of mortgage…thing with this industry is it’s not like every other industry…so all the expectations customers have go out the window. In any other industry you’d be able to get on the phone with the customer service department and make things right. In the mortgage industry you’re often just happy to close, even if things go awry along the way. Cynical but true. Best you can do is ask for referrals and make sure the company/broker has a overall good track record, then be a good customer and do what is asked of you in a timely manner. Lastly, the squeaky wheel gets the grease, so speak up early and often if necessary.

  49. Rick June 23, 2015 at 9:57 am -

    Colin,

    Thanks. Looking online, I’m having a hard time finding anyone with a good overall track record in customer service, and in reviews, people are always saying they spoke up early and often and it did no good whatsoever. I don’t understand why lenders do this — it seems pretty self-defeating. Is there anyone you can recommend?

  50. Colin Robertson June 23, 2015 at 4:33 pm -

    Rick,

    No one offhand unfortunately. It is frustrating because individuals can have a completely different experience while working with the same exact bank/broker because each loan is unique…so it’s really hard to pick a winner. Best one can do is feel the person out, read reviews, ask for referrals, ask smart questions early on, and work with the person to make the process smooth.

  51. Jen June 30, 2015 at 2:09 pm -

    It is possible and smart to combine my mortgage loan with my student loans?

  52. Colin Robertson July 1, 2015 at 2:33 pm -

    Jen,

    It depends on the rates of both loans, how far along you are on your existing mortgage, and if you qualify for a refinance or home equity line to cover your student debt. Also consider that failing to pay your mortgage could mean foreclosure, whereas falling behind on student loan debt may only result in wage garnishment. Do the math to compare options to see if it makes sense.

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