Are you looking for a home mortgage? Where do you look first? The first place we tend to go is our bank. We figure that it would be easier to go to our bank since all our finances are already there so it makes sense to consider getting a mortgage through the same financial institution. The next option we tend to consider is searching for a mortgage broker. Did you know that there is a third option? It’s a correspondent bank/lender.
What is a correspondent bank/lender? A correspondent lender is a combination of a bank and a broker, I like to say it is the best of both. They have access to multiple financial institutions such as a broker, so they are competitive in rates, but because they are not acting as a third party, they have the ability to underwrite and fund on behalf of multiple financial institutions.
Let me give you a small breakdown of each:
Bank– Financial institution licensed to receive deposits and make loans. They may also provide financial services, such as wealth management, currency exchange, and safe deposit boxes. There are two types of banks: commercial/retail banks and investments banks. Commercial banks typically manage withdrawals and receiving deposits as well as supplying short-term loans to individuals and small businesses. Consumers primarily use these banks for checking and savings, CDs, and home mortgages.
Broker– Gathers paperwork from a borrower and passes the paperwork along to a mortgage lender. They are a third-party source to help find a lender for the needs of their borrower. Brokers have access to working with multiple banks/lenders and get paid through an origination fee. They do not underwrite, fund or service the mortgage.
Correspondent lender-Typically is working with a correspondent bank. Which means they act on behalf for other financial institutions. They can underwrite and fund on behalf of other financial institutions that they have a correspondent relationship with. You may not be aware that when you are searching for a mortgage broker online, you are also getting a correspondent lender in your results.
When working with a correspondent bank/lender they have a direct line of communication with the underwriter. A correspondent bank/lender funds your loan at closing. Once the loan has closed then the mortgage is transferred to the financial institution in whom will carry the note. A correspondent lender can search for competitive rates such as a broker but will not have a 3rd party fee. A correspondent lender will have quicker turn times vs. a broker or a bank. Again, brokers are working as a third party and since they don’t have direct access to the underwriter communication may take a little more time.
What is the best option? This depends on not only your preference but is also determined by your needs. The disadvantage of a bank is that they only have access to their loans, their products, and come with their guidelines. Which for many of us may not qualify so would need to consider a broker or correspondent lender. With a broker or correspondent lender they can search for options that may suit our needs (higher loan limits, lower credit scores, renovation, etc.). Banks also tend to have longer turn times and for your needs, you may need to close in a shorter time frame. A broker typically has access to lower rates. They will also have access to multiple loan options/programs to help fit your needs. The downside of a broker is that they may have higher fees and again may have longer turn times.
Basically, what it should come down to is who will best serve your needs. In my experience when talking with a client, our initial conversation is based on “what are our rates and fees” but then usually takes a turn and ends up being around what is important to you. I always ask “outside of rates and fees what are you looking for in a mortgage lender?”. The answer I get 99% of the time is they want good customer service. They want to be presented with loan options they represent their needs. Having good communication is always import and last but not least is time. They want their loan done in a timely manner.
Regardless if you are going through your bank, mortgage broker or a correspondent lender you should always evaluate what is important to you and determine which option best suits your needs.
If you have any questions and/or would like to learn more, please contact us.
Resources: Here is a great article from RedFin that also helps break down mortgage broker, bank and correspondent lender.