Direct Mortgage Lender or Mortgage Broker?
We all know where mortgages come from, don’t we? Sure, they come from the bank down the street, right? Yet you’ve also heard of the term “mortgage broker” haven’t you? What about a mortgage banker? Do you want to get your mortgage direct from the lender? What’s the difference? Plenty. And knowing these differences can save you thousands on your home loan.
First, let’s review dealing with a broker compared to dealing with a direct mortgage lender.
A mortgage broker, by definition, does not lend any money yet "brokers" the transaction. They don’t “buy and sell” mortgages or pick out a company to sell home loans to. A mortgage broker acts as a go-between from the consumer to a mortgage company. It’s not necessarily more expensive to use a mortgage broker, or shouldn't be anyway. Brokers get their rates at “wholesale” levels, below what the consumer can find at a bank for instance.
In this scenario, you would make a mortgage application with a broker who would then document the file then send the loan to the direct mortgage lender who will ultimately be making the mortgage.
When you work with a direct mortgage lender, you apply with the same company who will be documenting, approving and funding your home loan. It’s a one-stop shop and it has some major advantages.
The benefits of working with a direct lender are many but two distinct advantages stand out:
- Competitive mortgage rates
- Control over the approval process
A direct mortgage lender is a mortgage banker. A mortgage banker can be part of a larger financial institution, namely a regional or national bank, that may also offer investment advice, checking and savings accounts and safety deposit boxes, just to name a few. A mortgage banker can also be a “pure play” mortgage banker that does one thing and does it well: approve and fund home loans.
Banks may not always be the lowest in rate. In fact, they’re likely higher than most other offerings. Banks know they have your checking account and perhaps an auto loan and maybe a credit card. And they also have your inherent trust. After all, you’ve got several accounts with them already. That inherent trust can lead to slightly higher mortgage rates, especially when compared to a mortgage banker. Check around, you'll see what we mean.
Established mortgage bankers have built their reputation slowly and steadily with excellent customer service and an unblemished reputation. Mortgage bankers also know that they don’t have the same name recognition as a national bank. They can make up for that by providing more competitive mortgage rates at a lower cost than a bank.
Yet even though a mortgage banker can have lower mortgage rates than their industry competitors, low rates don’t mean anything if the loan doesn’t close. And that possibility of not closing is heightened when a business loses control over the approval process. That’s a huge advantage when working with a direct lender: control.
Reduce the Friction
Any third party in any business is additional “friction” which slows down the business process. If you take a mortgage application with someone who then hands it off to yet someone else there is an inherent delay in the approval process and direct communication takes a hit. This communication impasse applies for any mortgage loan, be it FHA, VA or conventional fare.
For example, let’s say your loan application has your name as “John Doe” and the mortgage broker then forwards your application to a lender for approval. Now consider that the lender later discovers that you are also known as “John Doe, III” who happens to live at the same address. Or are you the same John Doe? Is there another John Doe who lives at your house or is this an error?
Such small items such as misspelled names or mistaken identities are a common yet important discrepancy and must be addressed. With a mortgage broker, the lender contacts the broker and asks the John Doe question.
The broker then contacts you and wants to know about John Doe III. You tell him that you are in fact John Doe III but don’t use that formal name very often. The broker then contacts the lender who tells the broker to get some documentation and a paper trail of your “John Doe” story. The broker contacts you and…well, you get the drift.
With a direct mortgage lender, the lender contacts you directly and asks, “Who is John Doe, III?” You reply, document the issue and you move on. Fewer headaches and a better overall transaction. This is obviously a small issue, you can imagine the advantage when a Big Issue comes up!
Further, your Realtor will love the fact your working with a direct lender, who has full loan flow control, rather than a mortgage broker that may or may not be around next month and has little control over contract closing dates and such.
If speed, reliability and competitive rates are important to you when applying for a conventional, FHA or VA home loan, then a direct lender is your obvious choice.