Mortgage Broker or Banker: What's the difference?

The long-standing cry among shoppers has been, "Eliminate the middle man." In the world of mortgage sales, the "middle man" is the mortgage broker, one of the two main ways mortgages are sold to consumers. The other method, employed by mortgage lenders, is to sell direct. Which lending source is right for you?

Mortgage brokers: Liking the middleman

A broker is paid an origination fee for selling the mortgages of loan wholesalers. Because they don't sell their own products, brokers are free to carry a variety of different loan programs. This can be helpful for subprime borrowers who don't qualify for conventional loans.

A broker may also be more skilled at crafting a loan application in much more favorable ways to lenders. And because the broker has access to a variety of rates, he can, in theory, help you find the best one, making his upfront origination fee pay-off over the long haul.

Mortgage bankers: Banking on the direct route

Mortgage bankers sell their mortgages directly to the consumer. They use their own money for the loans that they offer, although once they close on a loan, they generally sell them to investors, along with the mortgage servicing rights. Using a mortgage banker might save you some money on fees, as well as get you a faster approval, but you'll find that their loan options may be limited. This could be a problem if you don't qualify for any of their mortgage programs.

If you choose a mortgage banker, make sure that you shop around for various rates. Some do such tremendous business that they're able to offer lower rates and eliminate the need for that extra broker fee.

Don't depend on a coin flip to decide between the two. Instead, try shopping both options. When you compare the offers, you should have a clear-cut choice over which loan program you'll elect to receive. Instead of flipping a coin, you'll save plenty of coins in the process.