Online mortgage vs. with a human mortgage broker
March 16, 2017 12:11 PM   Subscribe

My partner and I are comparing options for mortgages and getting pre-approvals from several local mortgage brokers and online banks. We’re first time home-buyers and we're perplexed at how much cheaper the online bank's fees are (~$300) compared with a human mortgage broker's fees (~$3000). It seems like there must be catch, otherwise how do mortgage brokers continue to exist? Is there some benefit to using a mortgage broker that we'd miss out on if we went with the cheaper, online option? All mortgage shopping or condo/townhome-buying tips are welcome!
posted by crabapple to Work & Money (13 answers total) 6 users marked this as a favorite
We went with a human broker when we first bought our house and it was a miserable experience from start to finish. As it turned out, he was less experienced than we initially thought, and flubbed a bunch of things. We ended up refinancing with his company once, and that too was expensive and a pain.

On a whim I plugged our information into one of Quicken's online tools just to see if it made sense to refinance again a few years later. They came through with a deal that was considerably less expensive than either of our go-rounds with in person broker. We had a totally painless refinancing with them that saved us a fair bit on monthly costs and they've been really helpful and really responsive in the years since. I would absolutely recommend them.
posted by goggie at 12:15 PM on March 16, 2017

I live in a hot residential retail market where almost every home has multiple offers.

I've been told that brick and mortar bank mortgages (with a human broker) are considered much more legit for negotiation purposes than any online bank or online mortgage. Multiple real estate agents have told me those online mortgage ads that look so enticing are just not seriously considered in this market (Washington DC). A seller would always choose a more "substantial" offer over an online one. I'm not sure how true all that is, but it's what I've been told.
posted by kinsey at 12:18 PM on March 16, 2017

I live in the DC metro area and bought a house during the height of our market and used an online bank. The sellers only care that your prequalified and besides most banks who offer mortgages completely online (our was Chase) are ALSO real brick and mortar banks as well.

I have no idea what value mortgage brokers offer (I mean basically don't they just do the legwork for you of connecting you to a bank??) but I think if you are research oriented you can do the work yourself. You can also visit a bank in person if you know you want to go with a specific bank instead having to go see a mortgage broker (whose job it is, again I think, to try to get offers for you from multiple banks be they in person or online)
posted by TestamentToGrace at 12:53 PM on March 16, 2017

I think unless you're in a super-competitive seller's market like kinsey mentions any pre-qual letter for the right amount is as good as another.

I also think the bricks-and-mortar local bank approach is still viable because those people eat a lot of cheese and crackers at the local chambers of commerce events and network with a lot of local realtors to stay viable.

When I last bought a home in 2011 I went with my friend's bank, he handed me over to a guy who struggled to come in off the golf course long enough to do my paperwork, constantly surprised me with last minute problems that threatened to make my deal come apart, and then here's how the paper flowed after the closing:

- note sold from Local Bank to some BS "2nd Mortgage Holding Bank of Gwinnett County*": before I got out of the parking lot.

- note sold from 2MHBGC to Big National Bank That Got in a Big Scandal Recently*: before I made the first payment.

BNBGBSR has been taking my monthly payment ever since.

IOW, the people that were courting me and my wife to do the loan were only brokering a transaction. There are very few truly locally-held mortgages now. They're just acting as middlemen, and they will not do a deal unless the paper is already sold. They make a few points by doing the legwork. It's just an inefficient model.

I would go with an online company in a NY minute if I needed another mortgage.

*names made up to obscure the guilty
posted by randomkeystrike at 1:03 PM on March 16, 2017 [1 favorite]

I also live in a hot real estate market. If that's the case for you, I would ask friends for recommendations and if you have a real estate agent that you like, ask them who is a good lender.

We originally thought we'd get a loan from our credit union (where we do all our banking) but it turns out they have a reputation for being slow on paperwork, which is enough to lose you an offer in our market. So we went with a guy that our agent recommended and he was amazing. In a hot market, you only need one pre-approval and you want it from someone who is super responsive.
posted by purple_bird at 1:39 PM on March 16, 2017 [2 favorites]

When I bought a house in 2011 (in a very hot real estate market), I shopped around a bit for real-person mortgage brokers and was surprised at the variation in prices. The "independent" mortgage broker was around $3,000 in fees (just for him), whereas the local credit union--which offered the exact same interest rates that the independent guy was touting--had a flat fee of $600 for underwriting/loan origination and no scammy fees.

I shopped around by calling 3 different mortgage brokers / banks / CU on the same day, explaining the size of the loan we'd be looking for and our down payment size, and asking for a good faith estimate. Same day was important because some mortgage brokers will try to reduce how big their fees look by "buying down" their commission through giving you a higher interest rate.

I loved working with our credit union but if we refinanced I'd have no hesitation going through an online mortgage - I think the big fees on the part of in-person mortgage brokers can be pure profit, and some of them will just try to go as big as they can get away with.
posted by iminurmefi at 1:42 PM on March 16, 2017 [1 favorite]

I'm in a hot market. Most brokers, sellers know each other or know someone who knows them. It can actually make a difference in whether or not your offer gets accepted if there are competing offers. If I was selling my house right now, and my agent was looking at two equal offers with me, and one was with megabank electronic broker, and the other was with folksy local broker with connections, I'd take the offer with folksy broker in a heartbeat. I would want to know that the broker on the other end is deeply invested in a successful close. It takes so much communication to get a house closed, between broker, seller, buyer, agent and escrow, that having a human being is head and shoulders above. Buying a home for the frst time is super stressful. You want a good team on your side.
posted by pazazygeek at 3:06 PM on March 16, 2017 [4 favorites]

I've got several weirdnesses about my financial situation: separated but not divorced, was still on mortgage and deed for marital home, self employed, and [oops] hadn't filed my 2014 taxes the day I went to talk about getting a pre-approval when my dream home popped up on the market. I went with a highly regarded local broker and they made sure that every point where the process could have gotten stuck was able to be worked through (including telling me that day, in no uncertain terms, that the taxes had to be filed the next day if I wanted them to fast-track a pre-approval letter). They also worked with me to come up with the right magic documentation to convince the underwriters of my income. In contrast, husband tried to start his re-fi the week after me through an online bank and just got flat rejected after he submitted all his paperwork, due to the tax thing. Mortgage rates were already rising at that time have gone up a quarter point since...which would easily cost him 10 grand if he re-fis for 30 years. If things were more straightforward with my financials or if it were less a case of a pretty rare opportunity that I didn't want to miss out on, I would have shopped around online more.
posted by drlith at 3:54 PM on March 16, 2017 [1 favorite]

Writing from the blistering-hot market that is Seattle, here. Even after pre-qualification, we wound up having to deal with several extremely tight deadlines, and our (local, brick-and-mortar) broker was there for us whenever we needed her. I wound up being really glad to have access to both a physical office where I could drop things off, and a single, responsible human being who would take charge of resolving any issues we had.
posted by palmcorder_yajna at 4:39 PM on March 16, 2017 [4 favorites]

Having a live (and reliable and responsible...they do exist) broker or banker can make a difference in negotiations. For one thing, getting a preapproval letter that matches an offer you submit will help your negotiations. In other words, making an offer for x and presenting a preapproval for x + y lets the seller know exactly how much they can negotiate. Having someone responsive enough to craft a letter for every offer might save you some money.
posted by GPF at 6:38 PM on March 16, 2017

What pazazygeek said. Closing a deal can involve overcoming hurdles, and realtors want someone that they already know to be reliable helping the buyer, so a good local broker helps your offer get accepted by the sellers, and it keeps your realtor happy. My own realtor almost had a conniption when I asked this question and let me know in no uncertain terms that we wouldn't be working together if I wanted to use an online bank.
posted by salvia at 9:00 PM on March 16, 2017

Our mortgage broker was wrapped into the cost of our mortgage, while yes, I suppose we probably could have done the legwork ourselves, made it a lot easier for us. He was responsive, and when it came time to put an offer up, did everything he had to do, and got us a rate significantly below what we found with the standard banks. As first-timers too, we didn't want to accidentally get messed up, so him keeping it simple was appreciated. Both him and my agent were super helpful - and the value of our house was pretty low, so it's not like they made a ton of money for their work.

Our market is either hot or dead, so when we went to see a house on Saturday morning the day it came up, we had an accepted offer $10k above asking by noon. Both my agent and broker were right where we needed for that process, on a Saturday.

That's their job, and they fulfilled their end. Their fees were all wrapped up in the mortgage itself, and so I never really felt them (though of course I'm paying for it!).
posted by aggyface at 5:28 AM on March 17, 2017

If you are doing a plain vanilla conforming loan with a full down payment the value of a broker is questionable. The more esoteric your requirements are the more value a broker brings. They are more expensive because it is fundamentally a more expensive way to originate loans.
posted by JPD at 9:18 AM on March 17, 2017

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