When deciding how to acquire your new home, one question comes up often: how to best get your mortgage loan. We discuss the broker vs lender debate here!
‘Neither a borrower nor a lender be,’ William Shakespeare wrote in his play, Hamlet. All very well if you have deep pockets but the chances are, if you’re buying a home, you’ll need a loan.
Mortgages make up the largest form of debt among Americans with a total value of more than fifteen trillion dollars. There’s a lot of choice about how to borrow and where to borrow from. So, which is better, a broker vs lender?
Buying Your Dream Home
It’s a life-changing event and doesn’t come without its stresses. When setting out to find your dream home with the help of a Realtor you’ll need sufficient funds to pay for the house that captures your heart.
Applying for a loan to do this can come down to a choice between a mortgage broker and a direct lender. A broker acts as an intermediary. Their job is to help you identify the best lender for your circumstances.
They’ll often do a lot of the paperwork for you by gathering together all the information needed in the application process. They’ll also be able to explain the closing costs charged by those involved in a home sale.
A direct lender, on the other hand, is precisely that. They’ll be a bank or other financial institution that decides if you meet the right criteria to qualify for a loan. If you do, it will be they who hand over the check.
A broker is a little like an agent who acts on your behalf. A good one will find you a great value loan which is tailored to you. Think of them as your very own price comparison shop.
You should still also conduct your own research. You can do this online and compare lots of rates. If you have an idea of the sorts of deals you could get yourself, then you’ll be able to discuss these with your broker.
A reputable broker should be able to gather a lot more information for you than you could get yourself. Mortgages, after all, are their area of expertise.
Depending on how big a deposit you’re able to put down yourself, they’ll be able to match you with an appropriate lender. The type of home you’re buying, condo or co-op, for example, will also have a bearing on the best loan for you.
Brokers and Fees
Mortgage brokers make their money through a fee. This is based on the mortgage amount. You would normally have to pay this fee unless the lender covers it as part of the mortgage deal.
There is a perceived danger here that a broker could be unduly influenced by the fee. In the past, the fear was that this could detrimentally affect the advice they gave you.
It is true that some may have persuaded borrowers to choose high-risk mortgages. They may also have encouraged homebuyers to borrow more than they actually needed.
There are though more protections in place now. Always choose a reputable broker. If you prefer an advisor who’ll deal with lenders for you, then there’s no reason why you shouldn’t have a good experience.
Like some commission-based financial planners, some brokers may work or prefer to work with certain lenders. There’s nothing to stop you asking your broker if this is how they choose to operate and why.
A direct lender is an institution which offers mortgages normally as one of many financial products. Most direct lenders are banks or savings and loan associations.
If you’ve been with your bank for many years and have enjoyed the service, it’s always worth talking to them. Find out what, if anything, they may be able to offer you in terms of a mortgage.
Banks like and reward loyalty in their customers. They have an incentive to try and keep your business. You may end up with a better rate and feel more secure with an institution you already like and trust.
There’s nothing to stop you from applying to several direct lenders. Do your research carefully so that you’re clear about all the terms and conditions. This includes the length of the mortgage and any early repayment penalties.
Going directly to a lender is sometimes faster, a this is because you’ll be dealing directly with a bank rather than through an intermediary.
Using a Broker vs Lender
The choice you make doesn’t necessarily have to be between a broker and a lender. You could use the services of a broker and still apply to direct lenders yourself. This could give you a better opportunity to consider all the possible options.
The Pros and Cons of Using a Broker
Brokers will have several lenders they can submit your loan application to. This is useful, especially if you have a low credit score or income issues. Brokers can be ideal if your circumstances are a bit out of the ordinary.
If you want to buy a second home or have had trouble getting a mortgage in the past, then a mortgage broker should be able to help.
In some cases, a broker may charge higher origination fees. Because they’re not the actual lender, it can take longer for a loan to be processed than if you went directly to a lender.
The Pros and Cons of Using a Lender
By working with the lender, you’ll avoid some of the fees you would have to pay a mortgage broker. It may also be less likely that there is a conflict of interest if you choose a lender over a broker.
If you use a local bank you may be familiar with and trust the staff who’ll be processing your loan. You’ll be able to speak directly to the lender without the need for a go-between.
Most banks have more rigid loan programs. The requirements for acquiring a loan can be set at a higher level. It follows that less flexible requirements may also not get you the lowest rates.
Your Personal Circumstances Will Be Key
There are many dependencies that’ll have an impact on your mortgage. These range from your credit score to whether you’re a first-time buyer. It’s your own circumstances that’ll have the biggest bearing on the broker vs lender debate.
Whether you’re buying or selling a home, call me and let me help navigate you through these tricky waters. I have relationships with many fine brokers and lenders. Or, find out more here about what people think about the services I can offer you.