Understanding the Loan Process

Brokers versus Bankers - Product Selection

Some mortgage sources are direct lenders such as banks and mortgage bankers with retail establishments. Usually banks or mortgage banks will be competitive in one or several products, and will encourage their sales agents to sell these products to the consumer. Many times banks will not even necessarily try to be competitive in rate, but will instead try to fill a niche, such as quick approvals or flexible underwriting (easier approval) of loans. Going directly to the bank or source was probably the way that your parents obtained their home loan, but the trend is clearly away from such direct establishments towards the brokerage or ``multi-lender platform'' as brokers are now being called on the Web.

Brokers or multi-lender platforms represent a number of lenders and offer these lender's products through a wholesale arrangement. The lender will then compensate the broker when they deliver a loan to them and this compensation is invisible to the borrower. Many banks that offer retail or wholesale loans will allow the broker to charge up to 1% of the loan amount for their compensation. By reducing this 1% fee, a broker can in fact be more competitive than the retail side of the same bank. This is happening more and more as brokers are moving their services to the Internet and reducing their costs of distributing loans to the consumer.

Multi-lender brokers on the Internet can be the most competitive source for mortgage loans available. However, be wary of multi-lender sites that limit their choice of lenders to less than 10 sources. Many such sites are charging the bank to participate and can not offer unbiased selection as they are captive to their lending sources.

Brokers versus Bankers - Service

Direct lenders are captive to their own products. That is, they will not provide unbiased advice nor selection, since by doing so they will possibly risk losing your loan to the company whose product truly provides you the most value. Brokers on the other hand can sell a variety of products, from multiple sources, and can be objective in their recommendations. The compensation provided from one lender is equal to that from another lender, therefore the outcome of the recommendation doesn't matter. What does matter is giving you the best loan for your needs.

If you walk into your local bank, S&L, or retail mortgage bank they'll usually take your application there, perhaps underwrite your loan there, and lend their own money. If your loan is declined for whatever reason, you will need to begin the process again with another source. With a multi lender source, you have another chance if one lender doesn't approve your loan.

For simplicity's sake, we'll describe the overall process that is common to all loan applications regardless of the source of funds.

The Application Process

Whether you walk into a bank, you apply for your loan on the Internet, or a mortgage officer meets you in your home, all lenders require an actual application. The form is standardized and kno