A bank lends its own money and sells its own loan products. A mortgage broker lends nothing: the broker shops your file to several lenders and brings you offers. Neither is automatically cheaper. The better choice is the one whose written Loan Estimate beats the others for your situation, so the smart move is to get quotes from both and compare them line by line.
This guide explains how each option works, how brokers get paid, what to compare, and how the choice plays out for a San Diego buyer who also has to sign a buyer representation agreement under California's current rules.
TL;DR
- A bank (or any direct lender) funds loans itself. A broker connects you with lenders and does not lend money. Some institutions do both.
- Brokers can show you more loan options. Banks can be simpler if you already bank there and your finances are straightforward.
- Broker pay is usually not set by law. In California, brokers are paid either by the borrower or by the lender, and generally not both.
- The federal consumer finance regulator advises getting at least three preapprovals from different lenders and comparing them.
- Whoever you pick, ask for the same loan scenario in writing from each so the numbers can be compared fairly.
Table of Contents
- What each one actually is
- How they compare side by side
- The case for a mortgage broker
- The case for a bank
- How a mortgage broker gets paid
- What to compare: the Loan Estimate
- Preapproval is where the choice starts to matter
- Perspective: what we see from the agent's side
- The other commission question: what your agent gets paid
- How to decide in four steps
- Buying in San Diego with us
- FAQ
- Sources
What each one actually is
The words get mixed up, so start with definitions.
A bank is a financial institution that takes deposits and also makes mortgage loans. It offers its own products, underwrites them in house, and usually services or sells them afterward. Credit unions work the same way for this purpose.
A direct lender is any institution that makes loans directly, whether or not it is a bank. Some are mortgage-only companies. The Consumer Financial Protection Bureau describes a lender as an institution making direct loans, and notes that some institutions act as both lender and broker.
A mortgage broker is an intermediary. The broker takes your application and documents, then searches multiple lenders for a loan that fits your needs. The money still comes from a lender, and the closing documents will name that lender.
One more person you will meet: the loan officer who works at a bank. A loan officer represents that one employer. A broker represents no single lender.
How they compare side by side
| Factor | Bank or direct lender | Mortgage broker |
|---|---|---|
| Who funds the loan | The institution itself | A lender the broker places you with |
| Loan choices | Its own products | Products from several lenders |
| Speed | Direct lenders can close faster; banks may be slower | May take longer because of the extra step |
| Fees | Lender fees and points | Lender fees plus broker compensation, paid by you or the lender |
| Best fit | Straightforward files, existing customers | Credit challenges, self-employment, or wanting many options |
| Your effort | You shop each lender yourself | One application, the broker does the shopping |
The speed and fit comparisons come from a consumer mortgage guide, which says banks offer fewer mortgage options and that brokers can help buyers with credit challenges or self-employment. Treat those as tendencies, not rules. A small bank can be nimble, and a good broker can be fast.
The case for a mortgage broker
Breadth. One application can reach several lenders. That matters most when your file is not textbook: variable income, a recent job change, a lower credit score, or a property type some lenders avoid.
Time saved shopping. Comparing lenders is work. A broker does the legwork, though you should still ask to see more than one offer.
Strategy. A good broker explains tradeoffs: a lower rate with points versus a higher rate with lender credits, or which program fits your down payment.
We wrote more on this in how a mortgage broker finds the best loan in San Diego.
The caveat. A broker is not automatically on your side in the legal sense. HUD's borrower guidance advises comparing several brokers and says that a broker need not find you the best deal unless contracted to act as your agent. That booklet is older (1999), so ask any broker directly what duty they owe you and get it in writing.
The case for a bank
Familiarity. If your checking, savings and payroll are all at one bank, the file is easy to assemble, and some banks reward existing customers with discounts. Ask what the discount is worth in dollars and get it on paper.
One party, one process. The same institution that approves you often services the loan. Fewer handoffs can mean fewer surprises.
Fewer middlemen. With no broker, there is no broker compensation line. That does not make the loan cheaper by itself, since the bank's own rate and fees still count.
The limits. A bank sells what it sells. If your situation does not fit its guidelines, you hear no, and you start over elsewhere. Experian summarizes the core tradeoff: brokers reach many lenders, while banks generally offer options from one.
How a mortgage broker gets paid
This is the question behind "how much does a broker make on a $500,000 mortgage?" There is no single published answer, because compensation is negotiated and not usually fixed by law. California's Department of Real Estate explains that broker commissions and lender fees are not usually set by law, and that a broker is paid either directly by the borrower or by the lender, generally not by both.
What that means for you:
- Borrower-paid: you see a broker fee on your Loan Estimate. Ask for it as a flat dollar amount.
- Lender-paid: the lender pays the broker, and the cost is typically built into the loan's pricing, such as the interest rate. You may not see a separate broker line.
- Do the arithmetic yourself. As a purely illustrative example, a 1% fee on a $500,000 loan would be $5,000. Any real figure depends on the broker, the lender and the loan, so ask for the exact number.
The California guidance also says borrowers should compare fees from several lenders and brokers, and that they may be able to negotiate lower points. Negotiating is normal. Do it.
Banks are paid too, just less visibly: through the interest rate, origination charges, and the value of the loan after closing. "No broker fee" is not the same as "no cost."
What to compare: the Loan Estimate
The fairest way to settle broker versus bank is to make both quote the same scenario: the same loan amount, down payment, loan type, and rate lock period. Then compare the Loan Estimates. The CFPB says to look at the loan term, interest rate, down payment, monthly payment, costs and fees, and points, and to check that the written offer matches what you were told.
A simple worksheet:
- Loan term and type. Fixed or adjustable, 30 years or 15.
- Interest rate and APR. The APR folds in some costs, which helps compare offers.
- Points and credits. Are you paying points to buy the rate down, or taking credits that raise it?
- Origination and third-party fees. Separate what the lender controls from what it does not.
- Cash to close. The number that decides whether you can actually buy.
- Rate lock. How long it lasts and what an extension costs.
The same CFPB page recommends collecting at least three preapprovals from a mix of banks, credit unions and other lenders. A broker can count as one source, but if the broker's offers all come from the same two lenders, you have not widened your search much.
One timing note: a stack of mortgage applications can feel like a credit risk. Ask each lender how it handles credit inquiries and do your shopping in a tight window, so you are comparing offers from the same week rather than several weeks apart.
Preapproval is where the choice starts to matter
In a competitive San Diego bidding situation, a seller wants to see a lender who can actually close. A real preapproval, not a casual prequalification, shows that. If you are unsure of the difference, we explain it in our guide to preapproval versus prequalification.
When you are choosing a lender, ask each one:
- Will you issue a preapproval letter based on verified documents?
- How quickly do you typically close, and what happens if the appraisal comes in short?
- Who will I speak to day to day, and how fast do they reply?
- Can you quote both a lender-paid and a borrower-paid option?
Speed and communication count as much as a quarter point on the rate when a deal is on the line, since a late closing can cost you the house.
Perspective: what we see from the agent's side
We are real estate agents, not lenders, and we do not sell mortgages. That is exactly why we can say this plainly: we have no reason to push you toward a bank or a broker.
After more than two decades working San Diego deals, the loans that go smoothly share one trait, and it is not the lender's type. It is a borrower who got several quotes early, understood the Loan Estimate, and picked a lender who answers the phone. The deals that wobble usually involve a lender who was slow, vague, or changed the numbers late.
Our practical advice is to talk to one broker and one bank or credit union, and ask both for the same scenario. If the file is simple and your own bank is competitive, stay put. If you are self-employed, have recent credit dings, or are buying something unusual, a broker's reach can earn its keep.
Whichever you pick, we will work with your lender to keep the transaction on schedule, from the first showing through closing.
— Jeff
The other commission question: what your agent gets paid
People researching lenders often ask about real estate commissions in the same breath, so here is how it works in California.
Commissions are negotiable. California requires listing and sales agreements for one-to-four-unit residential property to carry a bold-type notice that commission rates are not fixed by law and are negotiable between the seller and broker. There is no standard San Diego rate to quote you here, and anyone claiming one is describing a habit, not a rule.
Buyers now sign an agreement first. Under California Department of Real Estate guidance, effective January 1, 2025, a buyer's agent must have a written buyer-broker representation agreement no later than when the buyer's offer is signed. It must state the compensation, the services, when compensation is due, and an expiration date no more than three months after signing. The California Association of Realtors also notes that buyers must sign a representation agreement before touring a property after the MLS changes.
Who pays the buyer's agent is a conversation. Before an offer, you and your agent can discuss asking the seller to cover all or part of your agent's compensation. If the seller says no, the DRE advisory says you are responsible for paying your own broker unless your agreement has an exit clause or your broker releases you. Since August 2024, sellers' agents may not advertise on the MLS what they will pay a buyer's agent.
The lesson for your budget: this compensation can affect your cash to close, so settle it before you write offers, and factor it in alongside your lender's fees. We cover the paperwork side in broker representation in San Diego.
How to decide in four steps
- Gather documents first: pay stubs, tax returns, bank statements, ID. Self-employed buyers should expect to supply more.
- Request three quotes for the same scenario: ideally one broker, one bank or credit union, and a third direct lender.
- Line up the Loan Estimates and compare them using the worksheet above, including points, credits and cash to close.
- Choose on total cost and reliability, not rate alone. Ask each finalist how they will handle a tight closing date.
Quick rules of thumb:
- Pick your bank if you have strong credit, a conventional loan, and a bank that matches the best outside offer.
- Pick a broker if your income or credit is complicated, or if you want someone else to shop the market and explain the tradeoffs.
- Pick whichever wins on paper if both are close. A lender who responds quickly is worth a lot at the closing table.
Buying in San Diego with us
If you are planning a purchase, our Buy With Confidence service walks you through the process from your first showing to closing, including how to line up your financing and offers. If you want listings that fit your budget once your lender is chosen, our VIP Home Search sends you matches for specific neighborhoods. We do not publish a price for either, so reach out and we will explain how we work. If you are selling first, start with a home valuation.
FAQ
Is it better to use a mortgage broker or your bank?
Neither wins every time. A broker gives you more lenders from one application, while your bank may be simpler and could offer a loyalty discount. Get a Loan Estimate from each for the same loan and pick the one with the lower total cost and the more reliable service.
What is the downside to using a mortgage broker?
The process can take longer because there is an extra party, and you will need to understand how the broker is paid. Brokers are paid by either you or the lender, and a broker need not find the best deal unless contracted as your agent. Ask about fees and duties up front.
Are mortgage brokers cheaper than banks?
Not necessarily. A broker's access to many lenders can turn up a better rate, but broker compensation is a real cost, whether you pay it or it is built into the loan. Compare Loan Estimates rather than trusting either side's claims.
Is a mortgage broker the same as a direct lender?
No. A direct lender funds the loan itself, while a broker does not lend money and places your application with lenders. Some firms operate in both roles, so ask who is actually funding your loan.
Are San Diego real estate commissions fixed?
No. California law requires a disclosure that commission rates are negotiable between the seller and broker. Buyer-side compensation must now be written into your representation agreement before you make an offer.
Sources
- CFPB: What is the difference between a mortgage lender and a mortgage broker?
- CFPB: Shopping for a mortgage
- California DRE: Using the Services of a Mortgage Broker (RE 35A)
- California DRE: Disclosures in Real Property Transactions (RE 6)
- California DRE: Licensee Advisory on changes to buyer representation
- C.A.R.: What a buyer's broker should do after the MLS rule changes
- C.A.R.: How buyers and sellers are navigating the changes
- HUD: Settlement costs booklet
- Experian: Should I go with a mortgage broker or a bank?
- Mortgage broker vs. lender vs. bank guide