Mortgage broker or Direct lender? What do you choose? What’s the difference between the two and which is better?
There are similarities between the two. Both brokers and direct lenders can conduct marketing campaigns to attract clients. They both can can gather information on your financial situation in order to determine whether you are worthy of their money. And both can help you better understand the mortgage process and clarify any legal disclosures to you.
A direct lender has a pool of funds from its investors, and lends the funds directly to the borrower.
A benefit of going the direct lender route is that the mortgage approval process will have one less party involved, which, in theory, should have less possibility for problems or issues.
The main benefit of a direct lender, assuming that they have a well oiled machine, is that they can get things done much quicker than if you were to broker out your loan. Given that there are usually several investors, depending on how the direct lender is set up, it is often set up the exact same way as a mortgage broker in that they are able to choose the best priced investor for the rates. However, if there is an overlay that for some reason the investor won’t accept, pricing may not always be an option. For example some investors have tighter guidelines with seasoning from a bankruptcy or foreclosure.
A mortgage broker works with several lenders and attempts to select the lowest interest rate for the borrower. The broker is usually compensated by the actual lender after you close on the property.
Some pros to using a mortgage broker are that you may get a better interest rate, and larger brokers may even offer promotional programs like lower closing costs or smaller down payments.
Some very important cons to note, when using a mortgage broker are the possibilities of miscommunication between the broker and the final lender. Mortgage brokers deal with many different lenders at the same time. For instance, a broker could be losing a lock on an interest rate because the true lender’s policies have overlays over and above what FHA or FannieMae has in their guidelines and the broker was unaware.
There is just no way for a broker to know each and every banks guidelines, especially since they aren’t made public.
Now that you know the similarities and the differences its really up to you to decide which route better suits your needs.