What does hunting for a house have in common with the popular Choose Your Own Adventure books? Every decision that you make seems to lead to more choices. Consider this: How will you pay for your new home? For most people, the answer is a mortgage, but that opens the door to even more choices. For example, mortgage broker vs. direct lender, which best suits your needs? While trying to sort through all the options can feel overwhelming, there is good news. If you select the right guide, securing the right mortgage for your needs will be a cinch.
Mortgage Broker vs. Direct Lender
Mortgage broker vs. direct lender: Many homebuyers find themselves weighing these options as they search for a home loan. While both of these types of professionals can help consumers secure loans, there are some distinct differences in how they operate, and those differences can impact the service that you’ll receive.
What Is a Mortgage Broker?
Mortgage brokers are middlemen. They don’t make loans. Instead, they work for aspiring homebuyers, helping them locate a home loan from the offerings of various lenders. When you hire a mortgage broker, that person will evaluate your finances, locate mortgage products that seem suitable for your needs, apply for preapprovals, help you assemble the needed documentation, complete loan applications, and offer advice about various mortgage products. Mortgage brokers work with multiple lenders, providing access to loans from an assortment of sources. They do not have access to all loan programs, however, and the regulations governing their activities are less stringent than the ones to which lenders are subject.
What Is a Direct Lender?
As the name implies, a direct lender is a lender who works directly with a borrower. Also called consumer-direct lenders, they do provide loans. In fact, they typically handle the underwriting in-house. While you’ll only be presented with the products that your particular lender offers, many lenders have a wide range of loan products available. Your choices will often include everything from conventional loans and government-sponsored enterprise loans like VA loans, FHA loans, and USDA loans to jumbo loans, reverse mortgage, and refinancing programs. How will you know what to choose? If you opt for a direct lender who prioritizes customer service, you’ll find that their team includes friendly, knowledgeable loan officers who are willing to provide guidance and support that smoothes your path as you navigate the mortgage approval process.
Mortgage Broker vs. Direct Lender: Which One Should You Choose?
Working with a mortgage broker has its pros and cons, and the same is true of working with a direct lender. As HSH.com explains, the difference between mortgage brokers and direct lenders impacts several aspects of the home loan quest:
- Guidance: Both mortgage brokers and the loan officers at direct lenders can offer insight into how the mortgage search works and advice regarding which of their offerings might suit your needs.
- Paperwork: Mortgage brokers allow you to deal with multiple lenders without completing multiple applications because they do the paperwork for you. Dealing with direct lenders means completing applications for each lender that you are interested in dealing with; since most lenders require similar information, the process isn’t difficult. If you choose your preferred direct lender at the start, you will only need to complete one application.
- Fees:Both mortgage brokers and direct lenders charge fees to process a loan. Brokers typically charge more, however, in order to make a profit. This is similar to buying a product from a retail store (mortgage broker) as opposed to a wholesaler (direct lender).
- Available Options: Mortgage brokers generally have access to a wider menu of loan options, but not all lenders work with brokers, so don’t expect to see every possibility if you hire a broker. Direct lenders only provide access to their offerings.
- Flexibility: Mortgage brokers can give you a pick of different lenders, but they have to follow the lender’s requirements. Because they actually originate loans, direct lenders can often be more flexible when it comes to a loan’s requirements.
- Timing: Mortgage brokers are knowledgeable professionals, but they have to wait for a reply from a lender if specific questions arise about a mortgage option. In contrast, direct lenders tend to respond to questions more rapidly. Plus, most direct lenders handle their own underwriting and closing, so they have greater control over that part of the process than a mortgage broker, who has to outsource those tasks. As a result, there tend to be few delays when dealing with a direct lender.
Mortgage broker vs. direct lender – which professional best fits your needs? If you value flexibility, speed, and economy, we encourage you to choose a direct lender. Instead of working with a middleman, you can go straight to the source.
At PrimeLending of Springfield, Missouri, we believe getting a home loan should be simple and rewarding. That’s why we make it easy to get prequalified*for a mortgage. There’s no need for a middleman when we have a friendly, knowledgeable loan officer ready to walk you through the entire process. We delight in doing our part to make your journey to homeownership as positive as possible. Contact us today to schedule an appointment.
* A prequalification is not an approval of credit and does not signify that underwriting requirements have been met.