Michael Shotnik
First Home -  Loan Specialist
mshotnik@summit-mortgage.com

denver1stmortgage.com               Mortgage Broker vs. Mortgage Banker

Mortgage Broker

A Mortgage Broker is an intermediary between the borrower and the lender. Most mortgage brokers represent multiple lenders and will work to find the client the lender that is most likely to approve your application. Mortgage brokers can generally offer a broad range of programs. It is important to understand that although a mortgage broker is in place to find you the correct product it is not always in their best interest to give you the best rate. Mortgage brokers earn a fee/commission for their work on your particular loan. The mortgage broker's commission can come from 2 places. Directly from you in the form of an origination fee or from the lender as YSP (yield spread premium). The higher the rate they sell to the client the more YSP the mortgage broker makes. The YSP will be disclosed on the good faith estimate but not in exact figures. Brokers generally state YSP 0-3%, this is sufficient for disclosure purposes and will not inform the client of exactly how much money they are making. At the time of closing you will see the YSP paid to the broker by way of  a fee that details POC (paid outside of closing). This is the amount the lender is paying the broker in addition to any origination fees you are paying them directly.

Mortgage Banker (that's us!)

Not to be confused with the local bank down the street. Mortgage bankers only provide mortgage banking and are considered bankers because they lend their own funds unlike a broker. Mortgage bankers offer the flexibility of working with a broker and are also able to provide direct funding which improves the rate for the client. Bankers are able to make approval decisions "in house" unlike a broker which greatly improves underwriting time. Upon closing the servicing is transferred to a servicing company who will service your loan. The transfer is seamless and is done without further participation from the client. As a client you will deal directly with the banker who will fund your loan right from the start, yet will have the flexibility of "shopping" your particular loan to multiple servicing companies to acquire the best rate and terms. Unlike brokers bankers do not get paid YSP, bankers are paid a release fee. This fee is paid by the servicing company once the loan is transferred. This fee is set by the servicing company.

Definitions:
YSP - yeild spread premium.  The income a broker makes from the lender.
Lender - bank lending funds to home buyer.
Broker - independent contractor acquiring financing on behalf of the buyer.
Banker - employee of the lender, direct funding source.
Origination - fee charged by the broker/banker to establish financing for the buyer.
GFE - Good Faith Estimate.  Estimate that details the costs associated with the loan.
POC - paid outside of closing.  Any fee that is not paid at time of closing by buyer or seller.
Underwriter-person who approves or denies the loan.

Please call or email me if you would like my list of dos and don'ts for first time homebuyers!

Visit my website to read the entire "First time homebuyer series"!

Michael Shotnik
First Home -  Loan Specialist
mshotnik@summit-mortgage.com

denver1stmortgage.com