Know the differences between mortgage brokers and lenders to get the best loan for you.
Mortgage broker. Mortgage lender. What’s the difference? And what is a mortgage broker, anyway? You can get a mortgage using either one, but each offers different services to help you loan shop. If you’re shopping for a mortgage, you should know the differences between brokers and lenders so you can use the right one—and end up with the right mortgage loan.
A mortgage lender, also called a direct lender, is a financial institution that gives you the money either directly or through a third-party to fund your loan.
A mortgage broker acts as a middleman, connecting borrowers to lenders. They’re like a personal shopper who helps you find a mortgage loan.
Pros of a broker
The big advantage of using a mortgage broker is they have access to a wide variety of loans and can search for the best product for you. That means you might get to peruse more loan options using a broker.
Brokers typically have access to all sorts of loan products, including conventional, FHA, VA, and USDA. Or if you have trouble qualifying for a loan, possibly because of a low credit score or maybe because you’re self-employed, a mortgage broker might come through with a lender that can work with your situation. Plus, brokers can get you wholesale mortgage rates so you might snag a lower interest rate loan.
Cons of a Broker
A broker doesn’t perform services for free. They typically take a percentage of the value of your loan at closing. But if you get the best loan through a broker, it could make up for the fee. Shop around for a broker and make sure you’re not overcharged. Expect to pay no more than 1 to 2 percent of the loan in broker fees. A great way to find a trustworthy broker is by asking friends, family, or your real estate agent for a referral.
Pros of a lender
Borrowers who have an established relationship with a financial institution might want to skip the broker and get a mortgage directly from the lender they know and trust. The existing relationship could lead to a discount on a loan. Plus, you know what you’re dealing with when you use your bank or credit union to get your mortgage loan, which can result in a better lender customer service experience.
Cons of a lender
Going directly to a lender limits the loans you can choose from to the loans that lender offers. So you might get the wrong idea about how much home you can afford or your mortgage eligibility if you only go to your bank. “Many loan officers will tell you that you cannot get a loan when it would be more accurate to say, ‘We cannot do a loan for you, but you could go to another lender and do this,’” says Todd Huettner, president of Huettner Capital, a residential real estate mortgage lender in Denver.
Pros of choosing both
You don’t have to limit your search for a mortgage to one or the other, broker or lender. You can shop with both a broker and a lender to see where you’ll get the best deal overall. “Explore all your options,” says Manny Sarnes, branch manager for Planet Home Lending’s Deland, Florida, office. “You can never have too much education on the mortgage programs available to you.”