One of the first steps of securing a home loan is deciding whether to work with a mortgage lender directly or use a mortgage broker. Both types of professionals can provide access to financing but take different approaches. Choosing the best route for your needs and goals is important.
Mortgage Lenders
Mortgage lenders are financial institutions that lend their own funds to borrowers to finance real estate purchases. This includes banks, credit unions, and other specialty mortgage lending companies or units.
When you apply for a loan directly through a lender, they will evaluate your application based on their own available loan programs and underwriting criteria. The major advantages of using lenders are:
- Ability to take a one-stop shop approach for financing.
- Potentially fewer third parties involved in your transaction.
- May have access to portfolio loan options not available to brokers.
The downside is that your choices are limited to what that particular institution offers. If you have unique financing needs, a lender may not have suitable products available.
Mortgage Brokers
According to the good folk at Mortgage Maestro out of Colorado, mortgage brokers serve as intermediaries between borrowers and various wholesale lenders. Brokers are experts in home loans, but do not lend their own money. Instead, a broker shops multiple lenders on your behalf to find suitable financing options.
Working with a broker provides these key advantages:
- Access to hundreds of loan programs across multiple lenders.
- Ability to choose the best loan for your particular situation.
- Expert guidance on qualifying and navigating the process.
The main drawback of brokers is that it adds another party in the lending process. There may be communication delays as the broker coordinates between you and different lenders.
Factors to Consider
When deciding between lenders vs. brokers, here are some important factors to weigh:
- Your Credit Profile – Borrowers with excellent credit and substantial cash reserves often have their pick of lenders and ideal loan terms. Those with special credit situations or lower down payments may benefit more from a broker’s expertise.
- Types of Loans Sought – If you know you need a specialty product like a physician or low down payment loan, a broker may access more options. If you want a common conventional or government-backed loan, either path could work.
- Desire for Personal Service – Brokers typically offer more guidance and handholding through the process. Lenders provide more transactional lending experience. Assess your need for service and expertise.
- Timeframe – In general, brokers may be able to get you pre-approved and matched with financing more quickly than applying directly. But the entire closing process timeline will vary lender by lender.
- Patience for Shopping – Brokers handle the work of shopping multiple banks and lending options. Lenders offer a faster option if you are eager to lock in terms and begin the transaction.
Getting the Best of Both Worlds
One option that provides some advantages of brokers and lenders is working with a lender’s in-house loan officers. These loan officers typically have access to their own portfolio loans as well as relationships with wholesale mortgage lenders.
This allows them to look at both their own lending products and programs from other institutions to find you the most suitable financing. You get the custom service of a broker combined with the convenience of having your loan handled start to finish by the same company.
Conclusion
In the end, there is no one “right” option for everyone. You need to examine your specific financials and priorities. Brokers offer more choice but involve more parties. Lenders provide direct access to financing but fewer loan programs. Assess your situation carefully.
