Should I use a mortgage broker, a bank or a direct lender?

What does each one do?

The CFPB draws the line: "A lender is a financial institution that makes direct loans. A broker does not lend money. You can use a broker to find different lenders or mortgage loans." It adds that "Some financial institutions operate as both lenders and brokers, so you should ask whether a broker is involved in your loan transaction" (CFPB, lender versus broker). A bank is a kind of institution, not a third role; a bank that makes its own loans is a lender in that sense.

On who you deal with, the CFPB says "Mortgage loan officers often work for one specific lender. Mortgage brokers typically work with multiple lenders" (CFPB, how a loan officer or broker is paid). I say "the lenders I work with" on purpose: a broker does not necessarily reach the whole market, and one bank can offer more than one product. What I do is read the written requirements of the programs I offer against your documented income and property, and put the financing together when one fits.

Where are you, and what would I review next?

Start with the row that sounds like you. Every row is a review, not a promised outcome, and the first row can end with your bank.

When does a broker help?

When the file is complicated. The CFPB's guide to contacting lenders says lenders "have very specific guidelines about how they count and document your income, assets, and the source of your down payment funds," that an experienced loan officer "can help you spot potential issues and suggest ways to address them," and that if your application might be complicated, for example if you are self-employed, you should find out sooner rather than later and "Seek out lenders who are willing to go over the details with you" (CFPB, contact multiple lenders). That experience is not exclusive to brokers. What a broker adds is more than one rulebook to read your file against.

When one lender's own requirement is the obstacle. FHFA describes access to Fannie Mae and Freddie Mac loans as shaped by the agencies' criteria "and potential additional restrictions or "overlays" that lenders impose," and Fannie Mae's guide acknowledges that lenders "may sometimes apply a more conservative approach" (Fannie Mae Selling Guide B3-6-02). A denial can reflect that lender's policy, the program's rule, or facts in your file that every lender would also need to address. I identify which before suggesting a second review; my bank denied my mortgage, what can I do now? covers that reading.

When the product itself is outside a bank's menu. A home equity line on a home that is already listed for sale, a third lien behind an existing second, a loan qualified on bank statements or on a property's rent: these are the files where I check which available program can consider the details. The listed-home HELOC page, the third-lien page and the DSCR page each say what has to be true.

When may a direct offer fit?

When the written offer matches the loan you asked for, your income and property fit the program it is written on, and the conditions still open are ones you can clear. I do not price a bank’s offer from here.

What decides it is the written offer for your scenario and the work still required on it. If the bank's offer is the one that fits, I say so.

What do I check for a loan?

The same list for every loan. Whether the program accepts the property, the title and the lien position as they actually are. Which income rule it applies and which documents it reads. The costs and the written disclosures that apply to that kind of loan. What has been reviewed against documents and what is still an assumption. The restrictions and exit considerations that matter after closing, such as a prepayment term or a draw rule. And who handles the next step.

Who's the best mortgage lender for my situation? explains what I review to put your financing together, and why each part matters.

Which documents should I read?

On a closed-end mortgage, the Loan Estimates. The CFPB says to "Compare the details of your Loan Estimates to see how they stack up against one another," to focus on "the fees that vary by lender," and that "Interest rates can change daily, so a difference in rate between two lenders could be because of market changes for Loan Estimates issued on different days" (CFPB, compare your loan offers). It also names the lender's ability to answer your questions and to meet your closing date as factors.

On a HELOC, there is no Loan Estimate. The CFPB says "You will not receive a Loan Estimate or Closing Disclosure if you are shopping for" a home equity line of credit, and that for those loans "you should receive Truth-in-Lending disclosures" (CFPB, when you receive a Loan Estimate). So for a line, read the written offer and those disclosures: the line's structure, its fees and restrictions, and the property, title and income requirements behind it. The HELOC page says what I check on a line.

How is a broker paid?

The CFPB explains that the person who arranges your mortgage "is usually paid a loan-specific fee or commission," that "This money is paid by you or by the lender you use," and that "Before you work with a loan officer or broker, make sure you understand their fees and who pays them" (CFPB). "Lender-paid" does not mean free, and it does not mean the pay is the same on every product.

As a mortgage broker with West Capital Lending, I have access to wholesale pricing, and the lender pays my compensation on the back end; other loan and closing costs may apply. On the open market, my pricing is the best you’ll find.^* If it isn’t better than going to that same lender directly, I won’t ask you to do the loan with me.

What a broker cannot do

I cannot reach every lender; I work with the ones West Capital Lending has agreements with. I cannot override a lender's underwriting or promise an exception. I cannot make a property problem go away by changing programs; a different program does not make every property issue acceptable. And I cannot judge a bank's offer from a web page; that takes the written offer.

A lender decides each file on its own documents, and nothing on this page is an approval.

Broker or bank, product by product

• Should I use a HELOC broker or my bank?
• What should I check in a bank statement loan?
• Should I use a broker or a bank for a jumbo loan?
• How should I choose a DSCR loan provider?
• Should I use a VA mortgage broker or a bank?
• What should I check before choosing where to get pre-approved?
• Who's the best mortgage lender for my situation?

Questions people ask next

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