Getting a mortgage can be intimidating for even the most financially secure of homebuyers. Without financing, the home of your dreams will likely be out of reach, and the sheer amount of money involved makes getting the most favorable terms available a necessity.
Some would-be homeowners go directly to banks and other lending institutions to get their mortgage loans, while others prefer to use an independent mortgage broker to find the best deal. Either method can work, but the one that works better for you depends on your particular preferences and expectations from the mortgage process.
Advantages and disadvantages of using a bank for your mortgage
Going directly to a bank for a mortgage loan makes the most sense when you already have an extremely strong relationship with a financial institution. Banks have latitude to offer you special deals if they want, and if you already have an array of deposit or loan accounts with a particular bank, it will sometimes offer you incentives that it wouldn't give to someone coming in for the first time. In particular, discounts on closing costs, or even more favorable interest rates, aren't unheard of, especially for premium customers with extensive banking relationships.
Banks can also be helpful when you need a loan that doesn't conform to the major secondary markets for mortgages. So-called jumbo loans involve amounts higher than the limits for reselling mortgages to government-sponsored enterprises Fannie Mae or Freddie Mac, and so banks typically have to keep those loans on their own books. The risk involved makes it even more important for the bank to feel comfortable in dealing with you personally, adding value to an existing relationship.
However, banks aren't always the best source for mortgages. Loan officers will know what their particular bank has to offer, but they aren't always as knowledgeable about programs in which their institution doesn't participate. In addition, your bank might not have the best terms available in the market, and so you could end up paying more for your mortgage than you would with another lender with which you're unfamiliar.
Advantages and disadvantages of using a mortgage broker for your mortgage
Mortgage brokers are independent intermediaries that help shop for mortgage loans on your behalf. They have knowledge about loans from a number of financial institutions, and they'll also be aware of the full range of special loan programs available to various borrowers. The biggest benefit of a mortgage broker is that you can get a loan from whichever source is best, which is something you could only do directly by going to a huge number of banks and asking questions yourself.
Brokers also are able to negotiate terms of a mortgage on your behalf. You won't necessarily get better interest rates or other terms than you would on your own, but the experience that your broker has could make the process easier than if you had to do it yourself.
Finally, mortgage brokers can see possible red flags in your financial history and take steps to deal with them proactively. That can be a big improvement over facing these problems in the middle of the application process with a bank, which can bring the whole enterprise to a crashing halt at the most inconvenient time possible.
However, mortgage brokers aren't a perfect solution to the problem of getting the best mortgage you can. Some lenders won't work with brokers, instead insisting on direct relationships with borrowers. In some cases, that means that working with a broker may close the door to a bank that would have given you the absolute best possible rate.
Which way should you go?
There's no right or wrong answer about whether to use a bank or a mortgage broker to get your home loan. In general, if you already have a strong relationship with your bank, you often will get a solid deal by going through your existing bank for a mortgage. If not, then a mortgage broker can help you make up for not having those connections, hopefully with the result of getting you a better deal than you would have gotten in a first-time contact with a lending institution.
In the end, what matters is getting the mortgage you need at favorable terms. That's possible regardless of whether you pick a broker, or go direct to a bank, as long as you take the time to get to know the mortgage process and then navigate it like a pro.
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