Purchasing a new home is arguably one of the biggest events in a person’s life.
It is a major milestone that needs to be considered seriously. Your job is to consider all variables before moving forward with the plan. And the biggest variable involved in a new home purchase is how to find the right mortgage broker or lender.
Unless you put down the total price for a new abode, you will need to deal with mortgage brokers, lenders, or both. The first step toward finding the right broker and lender is understanding the differences between mortgage lenders and brokers.
The basic difference between a mortgage broker and a lender is that a broker acts as a middleman between you, the buyer, and the company or institution lending you the money. In other words, a broker does not give money to borrow. A broker helps you find the right kind of lender for you.
The next natural question you may have is, “well, aren’t all lenders the same? Aren’t they all just lending money?” Well, the answer is a bit complicated. Not all loans are the same; therefore, not all mortgage lenders are the same.
Banks, credit unions, savings, and loan associations can all lend money. Each one will have its own stipulations regarding loan approval. The broker’s job is to find you the lender that suits your specific needs.
Should You Work With Brokers And Lenders?
Technically, there are no “good” or “bad” sides to using a broker or lender. It all depends on your specific financial goals and capacity.
Having said that, there are pros and cons to going through mortgage brokers or going directly to lenders, depending on what you want.
As a borrower, you should consider the good and the bad reasons before choosing. The following briefly compares the pros and cons of hiring a mortgage broker and lender.
The Pros Of Using A Mortgage Broker
- Sometimes comparing different types of loans from different institutions, such as banks or credit unions, can be confusing. When using a broker, all you need to do is provide them with your financial status, and they will do the required footwork to find the best options for you.
- Most brokers will work with many different loan service providers. This is advantageous for two reasons. First, you will find out about loan services that may not be widely advertised. Second, you may get a chance to go with reputable lenders that only work through brokers.
- The fact is some lenders prefer to work through a broker. Not only that, but they may also agree to easier terms when working through a broker, as opposed to working directly with the borrower.
The Cons Of Using A Mortgage Broker
- Brokers may charge a broker’s fee. You will need to decide whether the fee is worth it or not.
- Some brokers may not be incentivized to look at all the options available. This is because they get a commission from lenders to steer customers towards the lender. This, in turn, means you may miss out on other, better opportunities.
The Pros Of Going To The Lender Directly
- The first and most obvious benefit of going directly to a mortgage lender is that you may save money and time. You save money by not having to pay broker fees.
- Another way you can save money is by having a business relationship with a lender. Ask your bank if they give their customers competitive rates.
- By shopping around for the best rates, you can get an unbiased look at all the options available. There is no mediator; it’s just you and the lender.
The Cons Of Going Directly To The Lender
- If you have little or no knowledge of the home mortgage world, then you will need to spend time doing your research. Research can take a long time; therefore, consider this before moving forward.
- You may not have access to some lenders since some will not work directly with borrowers.
- Mortgage lenders may not be required to disclose all associated fees and charges that come with the loan. Therefore, it is up to you to do all the research and ask all necessary questions before signing on the dotted line.
As you can see, there are some fundamental differences between a broker and a lender as far as the world of mortgages is concerned.
They are two different groups serving two different masters. A broker is typically working for commissions. They will get a commission for every successful transaction. In contrast, a lender is usually a salaried employee who may get bonuses or incentives based on performance.
The regulations governing mortgages have changed over the years. These changes have slightly favored lenders.
Lending institutions have the ultimate say on who gets a loan. This means that they have the power to work with whatever financial issues the borrower may have. Issues such as down payment amounts and lower credit scores can be dealt with.
At the same time, a broker may not be very effective in negotiating a better deal for you if you do not have a good credit score or are unwilling to put down a high down payment.
Before you approach a lender or broker, an important first step in the loan hunting process is to get mortgage pre-approval. A mortgage pre-approval will let you know how much money you can borrow and if you can buy a home. Armed with this knowledge, you will be in a much better position to approach a broker or a lender.