Direct Lender or Mortgage Broker–What’s the Difference??

Suppose you were in the market to buy a new car. Would you go to a single dealership and expect to find the perfect car at the perfect price simply because you’re buying directly from the dealer? Of course not. It is very similar with mortgages and mortgage lenders.

There are countless mortgage programs based on countless ‘guidelines’ for determining acceptance. The variety of programs and rates varies greatly from lender to lender. Because of this, the odds are very much stacked against you finding the ‘perfect’ mortgage from a single direct lender. Direct Lenders have one group of programs. That’s it.
direct lender mortgage brokerBut why are direct lenders in favor right now over mortgage brokers and mortgage bankers?  One word-SPEED. Since direct lenders are using their own money and their own guidelines (most mortgage brokers will need to go through two sets of guidelines-the bank’s and the investor’s), they can close loans very quickly. They normally have their underwriters in-house. Closing loans quickly (or at least on time) is huge, especially on short sales. When a lender(s) approves a short sale, it has an expiration date. If the transaction doesn’t close by that date, an extension has to be requested (which isn’t always easy to get). That can lead to problems with appraisals, credit reports, and financial statements being outdated.

The advantage of a mortgage broker is that they can choose from the thousands of lenders to select the program that offers the lowest rate for your specific loan. Brokers will counsel borrowers on the loan options available from these different lenders and find the best “fit.” Some people fear higher costs by using a broker as opposed to a Direct Lender. This is sometimes the case. What must be kept in mind, though, is that Direct Lenders make their money off of the interest you pay on the loan– over time,  the amount of interest will far surpass your closing costs. In other words, closing costs must be viewed in relation to your interest rate. In fact, interest rates are more important than closing costs (especially since there are laws in place that prevent excessive loan charges). So sure, sometimes a direct lender offers lower closing costs. The interest rate, however, is rarely lower and that is what will affect you the most over the coming years.

My best piece of advice? Shop around for a loan before settling on one lender.

 

For more information on this topic:

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6 Responses to “Direct Lender or Mortgage Broker–What’s the Difference??”

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