Should I Go With a Mortgage Broker or a Bank?

What Is a Mortgage Broker?

A mortgage broker serves as a middleman between you and a range of banks, credit unions and private mortgage lenders. If you have less-than-perfect credit, are self-employed or have other special circumstances, this extra flexibility can help you find the best fit.

Mortgages have a lot of working parts: interest rates, down payments, origination fees, points and more. A good broker can help you understand how these variables work together and what makes one loan a good value compared with another. A broker will also walk you through the loan application process, which can be invaluable if your income is difficult to document or if the loan itself has complicated requirements.

Most mortgage brokers work on commission from lenders. For that reason, they may have an incentive to sell you a bigger loan—or steer you toward one lender over another, regardless of what's best for you. In other cases, brokers may charge you a fee for their services. Either way, ask about compensation upfront and look for assurances that your broker is always working in your best interest.

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Pros and Cons of Mortgage Brokers

Working with a mortgage broker gives you access to a wide range of loans, along with expert help in identifying which loan might be best for you. Here are a few pros and cons to consider:

What Is a Bank Mortgage?

Getting a mortgage from your bank, credit union or direct mortgage lender is a simpler process. You complete a loan application, meet with a loan officer and review your available choices. A direct lender may have excellent options for you, but working with one lender limits your choices. The bank next door might offer a better deal, but you won't know about it if you only talk to one bank.

Having a wider range of choices could be important if your credit scores might qualify you for a better rate at a different financial institution. Even a small difference in your interest rate can cost you tens of thousands of dollars over the life of a 30-year mortgage.

If you decide to work directly with a lender, you may still want to compare options from other financial institutions. Consider shopping around with three or four lenders to make sure you're getting a competitive offer. Learn more about qualifying for a mortgage and consider which factors might be affecting your loan approval, rates and fees. Familiarize yourself with current mortgage interest rates and see how your bank's rates line up.

Learn more: What Are the Different Types of Mortgage Lenders?

Pros and Cons of Bank Mortgages

Going straight to the lender is more direct, but it has its advantages and disadvantages. Here are a few to think about:

Is It Better to Use a Mortgage Broker or Bank?

Your choice may come down to personal preference and who you know. If you have a line on a great broker or banker, or you've had a good experience working with your bank on a loan in the past, that might tip the scales.

Consulting multiple sources, including both brokers and banks, is one way to get a better idea of what each has to offer. You might consider getting prequalified for a mortgage with both a bank and a mortgage broker. This could help you see right away whether your bank or a mortgage broker is likely to offer you the best rate and terms.

Here are a few additional considerations to keep in mind while you're making your selection.

When a Mortgage Broker Could Be Better

You may appreciate the additional help and perspective a mortgage broker can provide if any of the following apply to you:

• You have credit issues. You have low credit scores, a thin credit history or past credit problems such as bankruptcy. A mortgage broker's access to multiple lenders and loan options is also helpful when your credit score qualifies you for a better rate with one lender over another.
• You have nontraditional income. Self-employed people generally have to provide more income documentation than people who draw regular paychecks. A mortgage broker can help you determine what documents you need to provide—or prepare. They can also offer guidance on including nontraditional income like investments on your loan application.
• You have a small down payment. Finding the best rates and terms on loans with low down payment requirements can be a challenge. Mortgage brokers have wide-ranging knowledge about available loan programs, as well as up-to-date information on the rates that go with them.
• You have individual needs. Sometimes you simply want more help. If you're new to homebuying or want to understand every aspect of your home loan and its costs, a broker can explain your options objectively.

Learn more: How to Shop for a Mortgage

When a Bank Could Be Better

Working directly with a bank, credit union or mortgage lender is simpler, especially when you don't have specific concerns about getting your loan (or a favorable interest rate) approved. Consider going straight to the bank if the following apply to you:

• You have a solid banking relationship. If you already like your bank or credit union, it may be worth seeing what they have to offer. Taking out a mortgage at the same bank that holds your checking and savings centralizes your finances.
• You're comfortable shopping for yourself. You can compare loans on your own by visiting multiple lenders or searching for home loans online. Online lending sites are also great for helping you understand the range of available options, based on your credit score, income, down payment and home value.
• You don't have credit or documentation issues. The application and approval processes are easier for borrowers with excellent credit and stable, easily documented incomes. If you don't anticipate issues with your credit, income or down payment—or your bank has already preapproved you without any concerns—you may not need additional options.
• You want a simpler, streamlined process. If you choose to work with a single direct lender, you have fewer choices to consider and may have a faster turnaround time on your loan.

How to Improve Your Credit Score Before Getting a Mortgage

Your credit score and history play a major role in whether you'll be approved for a mortgage and what your interest rate and terms will be. Before you begin shopping for a loan, prepare your credit for the scrutiny of the loan process. If you're in need of a reboot, you may want to postpone your home search until you can take time to rebuild your credit.

In addition to checking your credit score and report, consider following these steps to maintain your best credit throughout the loan application process:

• Pay every bill on time. Payment history is the most important factor in your credit score. Even if you can only make minimum payments, don't be late. A single late payment stays on your credit report for seven years and will hurt your credit.
• Minimize debt. If you can pay off any outstanding debt, particularly credit card balances, this is a great time to do so. Paying down credit card debt will improve your credit utilization and it reduces your debt-to-income ratio (DTI), which helps to determine how much loan you can afford.
• Don't take out additional loans or add to your credit card balances. Try to put off any large purchases until after your home loan is funded. You'll keep your credit utilization and DTI steady and will avoid unnecessary credit inquiries that can cause your score to dip temporarily.

Frequently Asked Questions

The Bottom Line

You can get a great result with either a mortgage broker or a bank. Either one can help you navigate the home loan application process successfully and find a loan option that works for you. In the end, you'll decide how much loan you can afford, what interest rate is acceptable to you and what you're willing to pay in fees. Bank or broker, whichever option gets you the loan you need to finance your home comfortably is the right choice for you.

If you're shopping for a home—or thinking about it—now is a great time to check up on your credit. You can check your credit report and scores any time for free from Experian. To keep an eye on your credit throughout the home buying and loan application process (and beyond), you may want to sign up for free credit monitoring. You'll receive notifications whenever there's a change to your credit file, so you won't be surprised during the approval process.