Mortgage Brokers vs. Mortgage Lenders – What’s the Difference?

When it’s time to buy a home, a buyer’s main concern becomes finding a way to pay for it. Once any financial groundwork is completed and a homebuyer can prove financial responsibility, the next step is to secure a loan. The good news is that a buyer is not shackled to any one particular style of lender. They can choose from multiple options. If their credit score is high enough, lenders could potentially seek them out. Two popular lending options are mortgage brokers and mortgage lenders. Though they share several functions, there are enough differences to consider when shopping for a home loan. So the question becomes: mortgage brokers vs. mortgage lenders – What the difference?

Using a Mortgage Lender

A mortgage lender – or direct lender – is a financial institution that can offer a mortgage. Key examples include banks, savings and loan institutions, and credit unions. Since these institutions are independent of one another, a buyer will have to have to apply individually at each location. This could help in the long term as different institutions could be willing to offer better terms or rates, provided the borrower has a good credit score.

Also, a bank that has a history and positive relationship with the borrower may be more inclined to offer a better deal. This also gives the customer an actual brick and mortar location, without any middlemen, in case any problems arise.

A major limitation that borrowers need to understand with direct lenders, is that there may be a more rigid set limit of loans any one institution can offer.

Using a Mortgage Broker

A mortgage broker is an institution that can act on the borrower’s behalf to find the best terms and rates. A broker isn’t necessarily tied to any one company and can pool several to get the best rates or terms. They also save borrowers from having to apply multiple places, thereby speeding up the qualification process.

Although they act as a middleman, many homebuyers prefer this as an alternative since they are professionals whose job it is to deal with lenders on a daily basis. Many real estate brokers and lenders have certain mortgage brokers they trust and use exclusively, so it pays to develop good relationships in each field.

When using a broker, borrowers should be aware that they are paid a fee, which increases as the loan amount increases. That’s why it’s important to find a reputable option.

What’s the Best Option?

Direct lenders and brokers are both great options. Since getting a mortgage is a monumental financial decision, buyers should take the time to research both options and decide what’s best for them.

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