A home is perhaps the largest purchase most people will ever make in their lives. Often, individuals finance the purchase of their homes through mortgage loans. If you're looking to purchase or refinance a home, you may be considering using a mortgage to finance the purchase. The mortgage industry has a wide variety of individuals and businesses that can help you finance your home. These options can be overwhelming, making it difficult to know where to start. Fortunately, most of these individuals and companies can fit into one of two common categories. The categories are mortgage brokers and direct lenders. You may have heard these terms and had many questions about what sets these two mortgage loan options apart. Which mortgage loan option should you choose? What's the difference between a mortgage broker and a direct lender?
Mortgage Brokers
Mortgage brokers act as a middle man connecting borrowers with qualified lenders during the home loan shopping process. Mortgage brokers are not lenders and do not use their private funds to provide you with a loan. Instead, brokers connect you with reputable lenders that can provide the funds and terms for your loan. Brokers typically have access to wholesale loan rates from many lenders, allowing borrowers to receive many wholesale quotes from different loan programs all from one source. Mortgage brokers assess your needs and financial situation to communicate those needs with lenders and supply clients with a list of lenders that fit their needs. Brokers consider your credit, employment type and status, income, assets, and investments. This discovery process gives prospective borrowers flexibility and choice. Depending on your mortgage broker's fees, their wholesale mortgage loan rates may also make them a cheaper option than a direct lender.
Direct Lenders
Direct lenders are financial institutions or entities that provide the funds for a mortgage loan, cutting out the middle man and granting you access to retail mortgage loan rates. These lenders are typically either organizations known as mortgage lenders or banks. Mortgage lenders are financial companies that specialize in financing home loans and provide no other financial services. Many of these companies operate exclusively online. On the other hand, banks offer home loans as well as other financial services. Additional services can include checking and savings accounts, auto loans, and investment accounts. Because these are individual lenders, you will have to shop and apply with each of them one by one to get a quote. Each direct lender typically possesses fewer loan options and terms and, as a result, may not be as tailored to your needs as what a mortgage broker can find. However, your final loan rate can be cheaper than a wholesale mortgage broker if they have expensive fees.
Conclusion
As you can see, there are many fundamental differences between mortgage brokers and direct lenders. This summary of their differences should help you make the right choice for your needs.
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