Direct Lenders or Mortgage Broker
Whether it’s better to work with a mortgage broker or get a mortgage loan directly from a bank or lender, it depends on your financial situation and your preferences. Both mortgage brokers and lenders help people obtain financing for their mortgage needs. The process of applying for a mortgage through direct lenders is same as it is with mortgage brokers. Knowing the differences between direct lenders and mortgage brokers will help you to make a right decision so you will save time and money.
Mortgage Brokers
All mortgage brokers must have a broker’s license to perform their jobs. They must pass the Mortgage Loan Originator Test regulated by the State and Federal to ensure the brokers have the proper understanding of mortgage brokerage practices. Mortgage brokers act as liaisons that connect you and financial institutions.
Mortgage brokers can be paid either by lenders, known as lender-paid compensation, or by borrowers through an agreed-upon borrower. The main element between these two options is the interest rate. When the broker’s compensation is paid by a lender, the interest rate is most likely higher than the broker’s compensation is paid by a borrower. Brokers are also responsible for communicating between you and the lender during the loan approval process.
Pros of using mortgage brokers
Brokers do not lend their own funds to advance mortgage loans, instead they help you to shop around with multiple lenders within their network to pull in several programs at different terms and rates, so you can save time and make the loan shopping process more convenience. Specifically, mortgage brokers need to assess your needs and financial situation, particularly if you’re self-employed with complex business tax returns, or if your credit scores are lower than the minimum threshold set by the secondary investors, Fannie Mae and Freddie Mac.
Cons of using mortgage brokers
Some brokers may be tempted to certain lenders or banks if they stand to make a larger origination fee by working with that institution. So, what broker presents as the best rate may not necessarily be the best rate. Another concern is since mortgage brokers do not underwrite your loan application, so they do not have control of the loan process once it is submitted to a lender.
Suggestions
When working with a mortgage broker, you should always ask for a quick comparison to see if the rates and fees are truly competitive. To avoid any unpleasant surprises at closing, be sure to discuss fee expectations ahead of time. Also, you should find a mortgage broker that has both underwriting and processing experience, so they will be able to answer your questions without waiting for a lender’s response, and to close your loan on time.
Direct Lenders
Direct lenders are banks or financial institutions that offer and underwrite home loans. They directly lend you the money. They set the terms, interest rates, and conditions of your mortgage. Each lender has certain types of loans that they specialize in.
Pros of using direct lenders
Working with a direct lender, you will skip the broker fees, and may get a better rate. Since you are working with the lenders directly, they should be able to address any issues to you right away. So, that means you cut out the middleman, and the process is possibly faster.
Cons of using direct lenders
When you apply for a mortgage loan directly with a lender, you typically apply with several different lenders for a better comparison. Shopping around can be tedious and time-consuming. During the loan process, if there are problems with your application that they cannot overcome, your loan could be denied. If that happens, you will have to start a new application with a different lender. Also, with direct lenders, their loan origination fees are fixed, what you see is what you get.
Suggestion
If you aren’t familiar with the mortgage process, it may be more challenging, especially if your daily schedule is tight. Meanwhile, if you want to be in the driver’s seat, you have gone through the mortgage process a few times, or your application is simply straight forward with W2 income type, bank statements without investment, and no adversary credit, then getting a mortgage from a direct lender is a good choice.
Bottom line
When making the decision between mortgage brokers and direct lenders, it is important to do your homework, weigh the pros and cons of your options, and call both to compare their rate, and judge their response and service that they have provided to you. You should also assess their knowledge, experience, and integrity, because you want to be sure what they say at the beginning is what they deliver at the end, and they are capable of solving any issues that might occur during the loan process. Regardless of your decision, it is also your responsibility that you should provide your documents in a timely manner to satisfy loan stipulations.