Mortgage Broker vs. Direct Lenders: Which Is Best?
If you’re in the market for a house and have found the perfect place, your next step is securing a mortgage. For many people, this is the stressful part. You have to verify your income, go over your credit report and prove that you are a worthy borrower. Then the next step is figuring out where to get a mortgage. You have two options when trying to find a mortgage for your future home: mortgage brokers and direct lenders. There are several differences between the two. Read below to learn about how to determine the best fit.
A direct lender is anyone that can offer a mortgage, including commercial banks that offer a slew of services and mortgage banks. If you choose to find a mortgage going through direct lenders instead of mortgage brokers, you have to apply individually to each lender. This can make the process too time-consuming for some busy customers. Nowadays there is little variation between rates and terms so it might seem like a hassle to consult with many lenders. But even a difference of 1% can make a huge difference in the life of your loan. (For more, see: 5 Secrets You Didn't Know About Mortgages.)
One of the benefits of direct lenders is that it’s easier to solve any issues that might come up directly. Your broker may not be able to answer all the questions that the lender might have, so you might get better results talking to a lender directly. Going through a direct lender may also be faster than using a broker. If you have several accounts with the same bank, they may offer the best rates for being a loyal and valuable customer. (For more, see: How Interest Rates Work on a Mortgage.)
The primary benefit of a mortgage broker is that they can get a variety of quotes from different lenders and present them to you. Instead of applying to each lender separately, you only have to speak with one mortgage broker to see what your options are. (For more, see: How to Get the Best Mortgage Rates.)
People used to have a negative point of view about mortgage brokers because they were loosely regulated and consequently known for enticing borrowers to choose high-risk mortgages. Now that there are more protections in place, they’re a good alternative if you don’t want to use a direct lender. You can still use a couple of mortgage brokers to make sure they’ve done their due diligence. They make money when you choose a mortgage, so don’t be fooled that they only have your best interests at heart.
Borrowers that use mortgage brokers like that can head off any potential problems before going to a bank. The broker can also let them know what their options might be before the lender does, thus making sure their expectations are in line with reality. Mortgage brokers are paid a final fee based on the mortgage. If you don’t want to pay that fee, you have to find a lender that is willing to cover the mortgage broker’s fee. (For more, see: How to Pick the Right Online Mortgage Lender.)
The Bottom Line
You don’t have to choose between mortgage brokers and direct lenders. You can get quotes from both to see what is out there for you. If you call both mortgage brokers and direct lenders to compare their rates, you’ll be able to judge more fairly which route you want to go. If you get a recommendation for a mortgage broker and don’t want the hassle of contacting various banks, a broker might be the better option. If you already have a bank that you have a good relationship with, they might be able to give you a better mortgage. (For more, see: 5 Mortgage Loans You Didn't Know About.)