Mortgages and Financing

With so many possibilities, where do you start? Basically, you can approach a mortgage banker or lender directly, or you can go to a mortgage broker.

Mortgage Banker

The mortgage banker is the lender; the one making the loan directly. As Steve O'Connor of the Mortgage Bankers Association of America puts it: Why not go directly to the source?

Even if you use a broker as the middleman, it's the lender who makes the ultimate credit decision, said O'Connor, the association's senior director of residential finance. "And it can be cheaper, and perhaps faster, if you go to the source of the goods," he said.

A mortgage banker will present you with only that lender's program of mortgages, so you need to speak with several lenders to do comparative shopping. You can look at the real estate section of your local newspaper to get an overview of lenders in your area and their rates.

Mortgage Broker

A mortgage broker serves as a matchmaker between the home buyer and the lender. The broker draws from a pool of lenders to find the right match.

"The whole thing about a broker is choice," explains Neill Fendly, a Phoenix, Ariz., broker who is vice president of the National Association of Mortgage Brokers. "The broker has access to the products of hundreds of lenders, not just one lender's programs."

In scanning the mortgage market, both nationally and regionally, Fendly says, a broker knows a lender's specialty. The broker can identify what lender might fit a borrower's special needs, such as the first-time home buyer.

The broker does everything the lender would do -- checks your credit and work record, arranges for title search and hires the property appraiser -- but, once all of this information is compiled, the broker selects a mortgage lender that will most likely accept your application based on your financial data and personal information. In some offices, the mortgage brokers also are lenders.

Tip
While you may rely on the expertise of the mortgage broker, it is wise to make sure you are given options. Have the broker present several programs that meet your needs from different lenders.

How to Check on Reputation
As money-lending institutions, all mortgage bankers are subject to regulation. You can check on how the industry is regulated in your state by contacting either the state's department of banking or division of real estate. You can check there for any licensing requirements, and check if the particular lender is in good professional standing. The Library of Congress has an index of state and local government web sites.

Not all states require mortgage brokers to be licensed, so you will have to check with your state government. The local Better Business Bureau is another place to check whether there have been any complaints about the mortgage banker or broker.

Then, there are the professional organizations. "You can call your local Association of Mortgage Brokers and find out if the broker is a member," says Fendly. The association is a nonprofit organization with a code of ethics and business practices that applies to any broker who wants to be a member. There is a section of the association's web site where you can search for a member broker in your area.

Tip
Whether you choose a mortgage banker or broker, it's a good idea to ask friends and relatives, especially those who have recently gone through the process, to recommend a mortgage professional. When you meet with the mortgage brokers or lenders, you should explain your desires and concerns about becoming a homeowner, and then listen to how eager they are to work with you. After all, no mortgage lender makes money by turning you down.