Mortgage Brokers Versus Mortgage Bankers
This BLOG On Difference Between Mortgage Brokers Versus Mortgage Bankers Was Updated And PUBLISHED On September 5th, 2019
What are the difference between mortgage brokers versus mortgage bankers?
- Many home buyers, especially first time home buyers, go to their local bank to apply for a mortgage loan
- They are often told that they do not qualify for a mortgage loan
- Most banks and credit unions have their own mortgage lending overlays
- Lender Overlays are additional mortgage guidelines go beyond minimum agency lending guidelines by FHA, VA, USDA, Fannie Mae, Freddie Mac
- For example, a home buyer can qualify for a 3.5% down payment FHA mortgage loan under FHA mortgage lending guidelines
- However, many banks, credit unions, and mortgage bankers will set their own lending guidelines
- The can require higher credit scores than HUD and will not accept any mortgage borrowers with a 640 FICO credit score
- This is called a mortgage lender overlay
- There are many mortgage companies where there they have no mortgage lender overlays like Gustan Cho Associates at Loan Cabin Inc.
- As long as borrowers can get an approved eligible per Fannie Mae’s Automated Underwriting System and can provide the documents verifying whatever stated mortgage application, borrowers will get mortgage loan approval
In this article, we will cover and discuss the Difference Between Mortgage Brokers Versus Mortgage Bankers.
Difference Between Mortgage Brokers Versus Mortgage Bankers And Role Of Brokers
Difference between mortgage brokers and mortgage bankers is that mortgage brokers do not use their own funds to fund the home loan and are associated with third party wholesale mortgage lenders.
- Mortgage brokers can have relationships with multiple lenders
- Some may have relationships with dozens of lenders
- How do mortgage brokers get paid?
- Mortgage brokers get paid a commission by lenders via yield spread premium
- Yield spread premiums are disclosed on the closing disclosure
- The amount brokers get paid depends on the comp plan they set up with the particular lender
- The maximum compensation a mortgage broker can get paid by law is no more than 3% but most have comp plans of 2.5% to 2.75%.
- The higher the comp plan mortgage brokers set up with their wholesale mortgage lenders, the higher the mortgage rates the borrower will be given.
- Brokers who want to give their borrowers the best mortgage rates, especially brokers who specialize in refinance mortgage loans, may set a comp plan of 2% or less
The maximum a mortgage broker can charge a borrower by law is 2.75%.
Role Of Mortgage Bankers Versus Brokers
Mortgage Bankers are lenders who do not broker out mortgage loans to third party lenders. Mortgage bankers are lenders who use their own funds or use a warehouse line of credit to fund their borrower’s mortgage loans.
- Once the mortgage banker funds the borrower’s mortgage loans, they then package the mortgage loans that they have funded
- They resell them to the secondary market
- This is so they can relieve their warehouse lines of credit so they can fund more mortgage loans for new borrowers
- Mortgage bankers do not have to disclose yield spread premium but mortgage brokers do
- Yield Spread Premium is the amount of money mortgage brokers make
Who Should I Choose?
Mortgage Bankers normally market their own loan programs and set up their own mortgage lending guidelines.
- For example, some mortgage bankers may have lending overlays on credit scores
- They may not accept mortgage borrowers with credit scores under 620 FICO
- However, mortgage brokers may have access to a lender where the lender may accept borrowers with credit scores of under 620 FICO
- Advantage of mortgage brokers is that if a borrower gets denied by one lender, they can submit the file to a different lender
- With mortgage bankers, if the borrower gets denied by one lender, then the broker has the luxury to resubmit borrower’s loan application to a different lender with fewer overlays
Many mortgage bankers do have the ability to be able to broker mortgage loans. These mortgage bankers can be mortgage bankers and mortgage brokers at the same time.
This BLOG On Difference Between Mortgage Brokers Versus Mortgage Bankers Was UPDATED By Gustan Cho Associates on September 3rd, 2019