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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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