Broker vs Banker – Money Savings
When we represent you and your loan, the mortgage lenders compete to earn your business. Lenders are fully aware that we have more than a dozen places to send your loan to. Lender comparison and loan analysis drive competition in the wholesale market place therefore getting you a better deal. Here is a quick statistic…The maximum a mortgage brokerage (as a company) can earn on a loan is 275 basis points (2.75% of the loan amount). The average retail earned 379 basis points in 2017 (Mortgage Banker Association report April 16, 2018). That is about 37% more expensive than a broker. On a high level, this typically means the MOST expensive broker is making about 1% less in fees than a banker. On top of this, brokers have options…
What is Lender Optionality?
Lender optionality means that brokers have options between different lenders. While Lender A might be the lowest cost lender on one conventional transaction, Lender B might be the best priced lender for a renovation loan, while Lender C might be the best priced option for a VA/Veteran loan. So on top of charging less and being more efficient, brokers have options which is big. It’s not uncommon for the best priced lender in one loan program (let’s say a conventional loan) to be .250-.500% higher on other loan programs (ie. Jumbo). A loan officer that works at a bank or even a local mortgage lender will be ‘captive’ to their bank and not have options.
MYTH: It costs more with a ‘middle man’
We get raw pricing from the lenders. Typically, this is way better than the lender’s retail branches. At first thought, this might not make sense – why does a mortgage broker have better pricing than a loan officer that works directly for that lender? Mortgage lenders offer better base pricing to brokers because they don’t have to pay for several things – they don’t have to pay their loan officer, their processor, marketing department, HR, along with all of their benefits and respective costs. On top of health insurance, 401k, etc, keep in mind some of these benefits include bonuses, company trips, company parties, and more. With a broker, mortgage lenders don’t have to have a large IT department, a nice office, large overhead on more. This is why mortgage brokers can typically get you a MUCH better deal even if you end up getting the same mortgage with the same lender.