Bank vs. Mortgage Broker: You Be the Judge

Over the past few years, as people have been refinancing left and right due to plunging home loan rates, home owners are faced with the question—do we finance our loan through a local bank or a mortgage broker?  It’s a common, valid question.  Here are some truthful answers to help guide your decision.

Banks

When you finance your mortgage through a local bank, you meet with a local loan officer, and they can guide you through the process. They will address any problems you may encounter before, during, or after the loan process. They know the specifics about the area where your home resides, which is beneficial when it comes to home insurance and what coverage you may or may not need, based on your geographic location. When you make a payment or have questions come tax time, you can walk into the local banking establishment and take care of any necessary business.   

It’s worth noting that while not all banks service 100% of their loans, Bank of Luxemburg currently does. What this means is that, every customer who is approved for a loan through Bank of Luxemburg can rest assured that their home loan is being taken care of by Bank of Luxemburg.

Mortgage Brokers

It’s important to point out that a mortgage broker is paid a commission to find a match between a mortgage lending company and a buyer. They will only be paid a commission if they make this match happen, which oftentimes occurs even when the match is less than ideal.  

Example: Think of it the same way as financing a vehicle through a dealership. You want to buy a car. The dealership wants you to buy the car, so they can collect their commission. They have you fill out a loan application and send it into cyberspace for any lending company to snatch up at a good rate. This company doesn’t have to be local and doesn’t necessarily know anything about you or the area you’re in.

Mortgage brokers work the same way, sending your mortgage application to a multitude of lending establishments to allow them to “fight” over your mortgage. Once a lender is chosen, it doesn’t have to be a local company (most often it’s not). What this means for the borrower is that problems could arise—the lending company might not be familiar with terminology, regulations, or insurance exclusive to the region. Issues like these could slow down the loan approval process. Lastly, once the loan is financed, the buyer can’t go back to the mortgage broker for help. Prior to this, during the borrowing process, the mortgage broker has been a go-between. Once the closing occurs, the buyer is on their own to deal with an out-of-state lending company they’ve never spoken with before.

Fees

Believe it or not, whether you are working with a bank or a mortgage broker, there are fees involved. You could see them up front (as in the case of banks), or they could be hidden (as in the case of mortgage brokers). With a mortgage broker, you’ll see higher charges for some areas such as “application processing fee,” “doc. prep fee,” “paying for points,” and also “closing costs.” Typically, the fees associated with your loan will actually be higher when working with a mortgage broker.  

A Great Opportunity!

Lakeshore Community Action Program, Inc. is offering income-eligible homebuyers a $5,000 grant for the down payment of a home in Door, Calumet, Kewaunee, Manitowoc, or Sheboygan County. Buyers will be required to complete an education and counseling class, must have income that qualifies (per approved for a first mortgage), cannot have owned a home in the past three years, and purchase the home in specially designated areas.  

Homebuyer Education will be offered Friday November 30th from 9am – 3pm at Bank of Luxemburg at 100 Old Orchard Avenue in Casco, Wisconsin. Lakeshore CAP Homebuyer Education offers practical tools, consumer information, and includes handouts for each participant about the home buying process. This workshop is sponsored by a generous donation from Bank of Luxemburg. To register for the workshop, please call 1-800-924-0510.  Lunch and refreshments will be provided. Lakeshore Community Action Program, Inc. is an Equal Housing Opportunity Agency.