Banks: The Traditional Option
There are two different approaches to getting a mortgage. The first is to use a bank. There was a time when you had to contact the bank and speak to a mortgage specialist to find out their rates, requirements, and specials; and of course you’d have to do this same time-consuming procedure with multiple banks to compare and find the best deal. In the digital age many of these details are now posted online.
Most banks now offer a variety of different mortgage products to try to fit people in different situations and with different needs. Banks are often the go-to for first time home buyers, or for people seeking to keep all of their lending consolidated in one place. This can also give the bank more leeway later if you have further financing needs, since they’ll have your full history available for all of the products and services you have with them already. Banks allow you to carry on a professional relationship with one lender for all of your different needs, which allows you to trade on the trust you’ve built with one another.
The down side of using banks is that they will only offer you their own rates and their own mortgage products. If you see an attractive offer from another bank, your bank may try to match it as closely as they can, but they only have so much latitude to customize loan packages.
One other note is to consider that with banks you’re representing yourself. We mentioned above that banks have limited latitude to customize the loans they advertise. Use that to your advantage! Advertised interest rates aren’t like a price tag at the grocery store— you’re free to negotiate. However, in keeping with banks being the do it yourself option, the responsibility for doing that is on you.
Mortgage Brokers: The Full Service Option
Working with a mortgage broker is similar to the relationship you might have working with a real estate agent. They’re able to shop around with a variety of different lenders, including banks and private lenders, to find you the best rates and terms.
Your mortgage broker will then come back to you and tell you what they were able to find available, and work with you to decide which is the most attractive offer. Mortgage brokers are typically paid a commission by the lender once the loan has been approved, so there’s no extra cost to you, and you know they’re truly motivated to bring you an attractive deal!
Mortgage brokers sometimes receive volume discounts from lenders they work with often, and they’re able to pass that savings on to you, which means lower rates and fees. They also have the advantage of saving you time on paperwork, since they’re able to take your application for you to many different lenders. Finally, mortgage brokers do the negotiation for you that you’d normally be responsible for doing with the bank.
The disadvantage to using mortgage brokers is that you may not have the same pre-existing relationship with a mortgage broker that you have with a bank, and you may not get the same rates that their repeat customers get. Still, the benefits of a mortgage broker can often be worth it, and you shouldn’t underestimate the value of having a professional negotiating for you.
One final note on mortgage brokers is that they’re often the best choice for people with poor credit, or with a bad mark on an otherwise good history. Mortgage brokers have more access to lenders who specialize in people who are a higher credit risk, and they’ll also be able to tell you which lenders will or won’t consider your application based on your circumstances.