Mortgage Brokers Versus Mortgage Bankers
This BLOG On Difference Between Mortgage Brokers Versus Mortgage Bankers Was Updated On June 22, 2017
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 and are often told that they do not qualify for a mortgage loan.
- Most banks and credit unions have their own mortgage lending overlays which are overlays that go beyond the minimum FHA and HUD minimum lending guidelines.
- 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 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 and as long as you can get an approved eligible per Fannie Mae’s Automated Underwriting System and can provide the documents verifying whatever you stated on your mortgage application, the mortgage loan application will be the mortgage loan approval.
Difference Between Mortgage Brokers Versus Mortgage Bankers: Mortgage 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 more than one wholesale mortgage lenders and some may even have a dozen wholesale mortgage lenders.
- How do mortgage brokers get paid? Mortgage brokers get paid a commission by wholesale mortgage lenders via yield spread premium which is disclosed on the closing disclosure.
- The amount mortgage brokers get paid depends on the comp plan they set up with the particular wholesale mortgage lenders.
- 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.
- Mortgage brokers who want to give their borrowers the best mortgage rates, especially mortgage brokers who specialize in refinance mortgage loans, may set a comp plan of 2% or less.
Mortgage Bankers are mortgage lenders who do not broker out mortgage loans to third party wholesale mortgage lenders and are mortgage 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 and resell them to the secondary market 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 mortgage loan programs and set up their own mortgage lending guidelines.
- For example, some mortgage bankers may have mortgage lending overlays on credit scores and may not accept mortgage borrowers with credit scores under 620 FICO.
- However, mortgage brokers may have access to a wholesale mortgage lender where the wholesale mortgage lender may accept mortgage borrowers with credit scores of under 620 FICO.
- Advantage of mortgage brokers is that if a borrower gets denied by one wholesale mortgage lender, they can submit the file to a different wholesale mortgage lender.
- With mortgage bankers, if the mortgage borrower gets denied by one wholesale mortgage lender, then the mortgage broker has the luxury to resubmit the mortgage borrower’s loan application to a different mortgage lender with less strict overlays and lending guidelines.
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.