Home finance and loans from your home mortgage company
Mortgage Broker and Bank Home Finance
Difference Between Mortgage Broker and Bank Home Finance

We have all seen the advertisements in the real estate papers and heard the announcements on the radio. All types of home finance institutes and companies offering the best home loan. And then you really have to wonder where to start. What is the difference and how do many so many companies offer so many different home finance promotions?

Nowadays household finance companies are vying for business and the competition is fierce as it relates to the home finances market. Everyone is trying to encourage people to transfer existing home loans, sign with their company for a new home finance and use their company if borrower’s credit is poor.

In this article, we will examine the basic underlying difference between the types of institutes or household finance companies presenting these advertisements. Specifically, that is the difference between the financial institute more commonly known as the BANK and the other type of companies called MORTGAGE BROKERS.

Let us define bank and mortgage broker (private home loan lender) before we move on. The bank includes any financial institute where you can open an account and transact business such as making deposits, check writing, bill payments, savings, credit cards, investments and loans. The bank may include institutes such as the credit union, home and savings companies and the trust companies. The term “bank” is used very loosely.

A mortgage broker, on the other hand, is not a financial institute. Normally the brokerage would have many individual investors or company investments that would lend monies for a home loan from private coffers. Their sole business is loaning money by pairing the right private lender with the right borrower. Although, a mortgage broker can and will at times source your home loan from the bank, traditionally, they source from private lenders. This is referred to as “second tier lending” or “B” lenders.

Many borrowers choose to obtain their home finances with their financial institute. And the bank is a great place to negotiate a home loan if you have substantial savings and your credit is excellent. For many people, however, their credit is less than perfect and may not qualify for a home finance.

• Therefore, the first major difference between the bank and the mortgage broker is the type of people who can obtain a mortgage. A private home finance company or specialist may focus on those with poorer or marginal credit, the self-employed, sales commission earners, and workers in intermittent working situations.

Typically, the home finance broker’s requirements are less stringent than the bank’s requirements when reviewing home loan applications. Although, not all mortgage brokers appeal to those with poor credit, many view this group of people as a viable opportunity and a large service market.   In addition, the mortgage broker does not report to a board of directors and can make “looser” decisions than the bank when reviewing an application for home finance.

In seeking a home loan with a private lender, the chances may be somewhat higher than the bank of obtaining the home loan. The private home finance individual may visit the home and agree that it is a good investment. The mortgage broker may check the credit rating of the borrower to determine any fraudulent activity but otherwise the credit rating may be overlooked in granting the home loan.

Another market where the home finance broker may tap into is the area of the self-employed, commission sales and temporary workers or persons with intermittent work histories. Again, the bank is usually troubled by the fact that someone is not earning a set amount and earning it at regular intervals. A private home finance lender is looking for a reasonable return on his or her investment and may feel that as long as someone appears to have the means to make payments on the home loan, why not accept them.

• To recap, the second major difference between the bank and second tiered home finance lenders is that the application process carried out by the home finance company is usually not as difficult as the bank’s approval process. Some mortgage brokers will home finance difficult situations.

Further, when you receive a home loan from your financial institute, typically you do not incur any fees other than the interest on the home loan itself. The bank does not charge you for obtaining a loan. In some instances, the bank does not even charge for the appraisal. They have their own people who are sent out to do the appraisals. In the case of a private home finance lender, you almost always pay for the home appraisal. And you always pay for the service of the broker who successfully finds you a home loan.

• So the third major difference between the bank and the mortgage broker in obtaining a home loan are the extra fees that may be incurred with a mortgage broker.

Many people are willing to pay the fees for securing a home loan without question for several reasons. They may not like dealing with the restrictive home finance process of the bank and would gladly pay the fees. The bank may have refused them a home loan. The potential borrower knows he or she does not qualify for the bank’s process and lastly, it may be quicker to go through a private home finance lender than wait on the bank’s approval process.

But please keep in mind and understand that a legal and legitimate mortgage broker does not charge any up front fees. The appraisal fee is paid directly to the appraiser and the monies owing to the broker or mortgage brokerage are not due until the home loan is in effect. The home finance lender cannot by law charge to look for a mortgage and under no circumstances should you pay in advance to find a household finance.

• The fourth area where a bank may differ from a private home loan lender or mortgage broker is in dealing with a home inspection.

The bank almost always requires a home inspection whereas the private home finance lender may find it sufficient enough to visit the property himself. The private home loan lender has the flexibility to decide whether he or she wishes to take the risk as opposed to the bank home finance employee who is not permitted to make arbitrary decisions forcing the bank to take on risky ventures.

Another area where the banks and private home loan lenders differ is in the are of rebuilding credit. A bank typically does not help people rebuild their credit. They are notoriously interested in only those individuals who already exhibit good or excellent credit records.

The mortgage broker or private lender actually helps people to rebuild their credit and allows them the opportunity to apply for a bank home loan when they can show evidence or history of having made regular home loan payments. Private lenders know they may only have the home loan deal for a temporary period of a couple years as once the individual is ready to renew, they may be able to source bank funds. The broker may even help the borrower to find bank funding when the home loan renews as they are again entitled to a commission or fee.

In conclusion, one home loan service is not necessarily better than another home finance service. One home loan company may suit a particular individual’s needs better than another household finance company but most have merit in their own ways.

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