Should you go with a mortgage banker or broker?

While you're attempting to find the best home loan rates, you may come across the terms mortgage banker and mortgage broker. In addition to checking which lender has the most affordable rates and loan terms, you need to understand the differences between these two financing sources.

What is a mortgage broker?

Brokers are a go-between when it comes to getting financing. They do not actually give you the loan. Instead, their job is to sell you a mortgage on behalf of a lender. Brokers can be individuals or firms that represent the interests of several lenders. Similar to how home inspection professionals know about a plethora of home issues, brokers have knowledge of a number of loan products.

Because brokers have access to information on a variety of lenders and loan products, they are able to help you find the best mortgage for your home buying goals. Essentially, their job is to match you up with a home loan - for a fee that may be paid by the lender - similar to how your real estate agent will help you find the home you want.

When it comes to originating and processing the loan, the broker takes care of these steps. However, it is eventually sold by the lender to a mortgage investor, such as government-sponsored enterprises Fannie Mae and Freddie Mac.

What is a mortgage banker?

Rather than having a middleman, borrowing from a mortgage banker allows you to go straight to the source. Banks offer a variety of loans to their current and new customers, including mortgages. When searching for financing, you can stick with your current bank or get a loan from another financial institution.

Keep in mind it's a good idea to shop around even if you know about your bank's home loan offerings.

Which lending option is best?

The answer to this question is based your financing needs and preferences. Examining the pros and cons of each option can help you determine whether a broker or banker is best.

Here are the pros and cons of each:

Mortgage broker

• Pros: Brokers reduce the amount of time you'll spend on comparison shopping because they have knowledge of many lenders' offerings. They have the skills and expertise to locate a mortgage that is customized to your needs. Additionally, brokers can get you access to exclusive loan products and take care of a lot of the paperwork that comes with applying for financing. Given this stack of documents is thick, you can save a good chunk of time on the loan process.
• Cons: For some brokers, you're responsible for paying the commission, which can be sizeable. Furthermore, you're putting your financing in the broker's hands and trusting in his or her expertise to find the best available loan product. However, if you have a novice or otherwise inexperienced broker, you may not get the most suitable mortgage.

Mortgage banker

• Pros: If you've been with your bank for some time, you may be able to receive discounts and other perks when you apply for a mortgage. On-time bank credit card payments, for instance, can show your bank you're a reliable borrower, which could grant you a more favorable interest rate. Banks also give you the ability to cut out the go-between, allowing you to directly interact with your lender. 
• Cons: When borrowing from a bank, you have fewer mortgage options. Whereas a broker presents several loan products, you can apply for only what the bank offers. As such, you may not get the most favorable terms at your bank and need to shop around.