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I'm a new home buyer, buying a condo. Now that we have already signed a contract, a question raised for me. Is it recommended to get a mortgage directly from a bank or through a mortgage broker?

  • Which one saves us more money?
  • Lower interest rates? Lower closing costs?
  • Shorter loan preparation?

I've been already in contact with a broker, but looking at their cost sheet, I feel they are going to rob us. They keep saying these are estimates, which makes me think, as a first-time buyer, that they will suddenly increase the prices later once you are stuck.

The purchase price is $175K. Putting down 20%, and going for a 15-year loan.

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    By "private loaner" do you mean a mortgage broker? Or an individual that is willing to loan you money? – D Stanley Jul 2 at 15:36
  • This will sound stupid, but have you looked at mortgage/bank fees and compared them with "private loaner" fees? (Spreadsheets are great at this kind of thing.) – RonJohn Jul 2 at 15:36
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    BTW, kudos for going with 20% down and a 15 year loan. you'll save tens of thousands in interest. – D Stanley Jul 2 at 15:39
  • Sorry...mortgage broker. Yes. – Tina J Jul 2 at 16:15
  • @RonJohn didn't go to banks yet. – Tina J Jul 2 at 16:15
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One is not always better than the other. I refinanced in the last few years, and I shopped around with different brokers (online and local) and banks. I found both brokers and banks that were very sketchy in regard to their fees, which was the main differentiating point (rates were more or less the same between them).

There should be no risk in general of choosing a broker over a bank. More than likely the broker is going to sell your mortgage to a bank within 6 months anyways. This is not a bad thing - it's just part of the mechanics of the mortgage industry.

My main warning is to NOT choose the broker/bank that a realtor recommends without shopping around. They often quote higher rates/fees with the hope that you won't take the time to shop around.

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    Yes, definitely the one who they recommend is the worst. I don't know why they insist on going for the same one (do they get a commission?!). My experience showed agents are the most dishonest people. – Tina J Jul 2 at 22:33
  • @TinaJ They might have a personal relationship and/or get "kickbacks" (possibly illegal) for referring clients, yes. It's good you shopped around and discovered this now. To be fair to other brokers, I've had decent luck with brokers that were not recommended by agents (i.e. found online) so maybe that's a common thread? – D Stanley Jul 3 at 13:31
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Now that we have already signed a contract, a question rised for me. Is it recommended to get mortgage from a bank or a private loaner?

This is exactly the type of thing that should be done before signing a purchase contract. The typical purchase contract in the US has a short deadline for the purchaser to arrange for financing.

There is no absolute answer to this. Your local bank/credit union might have a great rate. It might not. A mortgage broker might be able to find a great rate, but maybe not.

Now with 20% down then VA, FHA loans won't make a lot of sense but in some cases they might.

You will have to see what lender has the loan that best fits your situation.

The lender should be using the required disclosure forms, which will allow you to compare rates and fees.

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If you go to a bank, you get their rates and fees based on what that bank can offer. When you go to a broker, you get the rates and fees of what multiple banks can offer, so you can price shop more efficiently. As for overall experience, that probably depends more on the personality of the loan officer, than whether they work for a bank or broker.

The biggest difference is that with a broker you don't know what bank you're going to end up with, since the broker sells your mortgage either immediately or shortly after. I got lucky once and ended up with my own bank, but another time I got a loan servicer that didn't make my escrow tax payment on time which ended up being a hassle (but they did eat all the late fees in the end).

Regarding your worry that the estimate may shoot up later once you take the next step, I believe the opposite is true. In my case with my broker the final numbers always came in lower than the estimate. And even if they didn't, you can always say no if you don't like them.

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I don't know any good reason to go with one over the other. Maybe someone could find statistics showing which, on the average, gives a better deal, but I'd say, So what? You don't care what interest rate the AVERAGE bank charges. What matters is what interest rate the bank you actually take a loan from charges.

Compare the terms of loans offered by individual institutions, whether mortgage brokers or banks or whoever else might be out there. Pick the loan that has the best terms for you. Don't worry about what sort of institution it is.

Be sure to consider the interest rate, length of the loan, any "points", application fees, and other closing costs.

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