There are three different kinds of primary mortgage services: 

Mortgage Lenders

Mortgage lenders are financial institutions that make loans directly to you. Lenders can offer their own products, or products through many different investors; however, they do lend their own money for your closing.

Mortgage Brokers

Mortgage brokers are licensed professionals who can provide various mortgage options from multiple lenders. They help you find a program & lender, but don’t loan you money directly. Instead, they facilitate the process between the borrower and lender.

Banks and Credit Unions

Banks and credit unions are financial institutions that lend directly to you. They typically offer their own products and do not offer programs from other lenders.

Now that you know the types of lenders out there, you probably have questions. Questions like, “What are the fees for these types of services?” and “What are my loan options?” and of course “How do I qualify for a loan?” Here are the broad strokes:

Fees

Mortgage brokers charge a fee for their services, which is usually a percentage of the loan amount. Lenders, banks, and credit unions may also charge fees, but they are usually lower than those charged by brokers. This is known as an “origination charge.”

Loan Options

Mortgage brokers and mortgage lenders can typically provide you with a wider range of loan options than a single bank or credit union can offer. This can be especially helpful if you have a unique financial situation that merits a rarer type of loan.

Qualification

Mortgage brokers and mortgage lenders will typically have many more options for you to qualify, especially if you have a unique situation. They can also help you find a loan that fits your specific needs.

Now, let’s go into more detail regarding the three types of mortgage services and do a pros and cons list. If you’re torn and aren’t sure which is the best fit for your needs, we suggest you rate each item on a scale of 1-5 on how important each pro or con is to you. Add up the pros and cons numbers separately; you’re looking for high numbers on the pros and low numbers on the cons. This may help you make your decision.

Using a Mortgage Lender

Pros:

More Lending Expertise and Training: Mortgage lenders have more expertise and training in the mortgage industry than banks, and Loan Officers must be individually licensed, and must receive regular annual training by law. 

More Loan Options: Mortgage lenders can offer more loan options than banks, which can be helpful if you have a unique financial situation.

Better Loan Guidance and Advice: Mortgage lenders can provide better loan guidance and advice than banks, which can help you make more informed decisions about your mortgage.

More Willing to Negotiate on Terms: Mortgage lenders are often more willing to negotiate on terms than banks, which can help you get a better deal on your mortgage.

Faster Loan Closing: Mortgage lenders can often close loans faster than banks, which can be helpful if you need to close quickly.

Cons:

Less Strictly Regulated: Mortgage lenders are often less strictly regulated than banks, which can make them riskier to work with. This is truly a big drawback, so do your research and make sure you're taking out a loan you can pay back.

Less Control Over Servicing: Mortgage lenders often sell mortgage servicing rights on their loans to servicing companies after closing. That means you won’t have control over who you ultimately pay or work with, although the rates and terms on your mortgage can’t change after the sale. 

Using a Mortgage Broker

Pros:

Licensed Professionals and Experts: Mortgage brokers are licensed professionals and experts in the mortgage industry, and similarly to Mortgage Lenders, Loan Officers must be individually licensed, and receive regular annual training by law.

Access to Lenders: Mortgage brokers have access to lenders that you don’t, which can help you find the best rates.

Unbiased: Mortgage brokers are unbiased and can provide you with objective advice.

More Choices: Mortgage brokers can offer more choices in terms of both rate and loan types.

Potentially a Free Service: Mortgage brokers are often paid by the lender, which means their services may be free to you.

Cons:

More Time Consuming: Working with a mortgage broker can be more time consuming than working with a lender directly.

More Paperwork: Working with a mortgage broker can also involve more paperwork than working with a lender directly.

Involves a New Person: Working with a mortgage broker involves adding a new party to the mortgage process, which can be stressful for some people. 

Using a Bank

Pros:

Influence Over the Application Process: When working with a bank, you have some influence over the application process. You may even be able to negotiate some costs like underwriting or origination fees.

Existing Bank Customers get Perks: If you take out your mortgage from your personal bank, you may be entitiled to special rates or benefits. 

You’ll Always Work with the Same Bank: Banks usually don’t sell the servicing of your mortgage loan to another lender after closing, which means you’ll pay and work with the same bank for the life of your loan.

Cons:

Fewer Loan Options: Banks have fewer loan options than mortgage lenders and brokers.

Tend to Have Strict Credit Requirements: Banks tend to have stricter credit requirements than mortgage lenders.

Processing timeframes:  Banks can sometimes take longer to process and close a loan compared to mortgage lenders.

Think about what is most important to you, whether it’s flexibility, a range of options, a relationship with the lending institution or officer, rates, or efficiency; then choose the type of mortgage service that will best suit your needs. Want to learn more? Read more here and here; and if you need recommendations for lenders and brokers, we’ve got you covered! Visit our Resources page for a list of trusted mortgage services.