How a Mortgage Banker Works
Working with a mortgage banker often feels more direct because every step happens with a single company. The process typically follows these four stages:
- Origination: You start by submitting your mortgage application and financial documents—such as pay stubs, tax returns, and bank statements—to the mortgage banker.
- Underwriting: The banker’s underwriting team analyzes your financial health to ensure you can repay the loan. They verify your income, credit history, and debt-to-income ratio. Since they are lending their own capital, their review is thorough.
- Funding: Once approved, the mortgage banker funds the loan at closing, transferring the money to the seller. They use their own funds or borrow from a “warehouse line of credit”—a short-term financing tool common in the mortgage industry.
- Selling and Servicing: After your loan closes, the mortgage banker often sells the loan to larger investors on the secondary mortgage market, such as Fannie Mae or Freddie Mac. This step replenishes the banker’s capital, allowing them to lend to other homebuyers. Your loan terms (e.g., interest rate, principal) do not change when the loan is sold. The original banker may continue to collect your payments through a practice known as loan servicing, or they may sell the servicing rights to another company.
Mortgage Banker vs. Mortgage Broker: What’s the Difference?
Borrowers often confuse mortgage bankers with brokers. While both help you get a home loan, they function very differently.
- A mortgage banker is a direct lender that provides the funds for your loan.
- A mortgage broker is an intermediary who compares loan options from various lenders to find a suitable match for you but does not fund loans themselves.
Pros and Cons of Using a Mortgage Banker
Pros:
- Unified Process: With the application, underwriting, and funding handled in-house, the process can be faster and more predictable.
- Direct Control: The banker controls the timeline, which can be an advantage in a competitive housing market where speed is critical.
Cons:
- Limited Loan Options: You are restricted to the mortgage products offered by that specific company.
- Less Rate Shopping: A mortgage banker has no obligation to inform you if a competitor offers a lower interest rate, so you must compare rates yourself.
Frequently Asked Questions (FAQ)
Is it better to use a mortgage banker or a broker?
It depends on your priorities. A mortgage banker is ideal if you value a streamlined, predictable process. A broker is a better fit if you want to compare numerous loan options to find the lowest possible rate without doing the research yourself. For best results, consider getting quotes from both.
Why was my mortgage sold?
Mortgage bankers sell loans to replenish their capital, which allows them to continue lending to new homebuyers. According to the Consumer Financial Protection Bureau, the terms and conditions of your loan are legally protected and cannot change when your loan is sold to a new owner.
Are large banks considered mortgage bankers?
Yes. When large national banks like Chase or Wells Fargo originate, fund, and service mortgages directly, they are operating as mortgage bankers. They use their own capital and offer their own specific suite of loan products.