Residential Direct Lending

Mortgage Broker vs. Direct Lender

There are many options in the mortgage sector, including both private lenders and companies, to help people gain access to financing for bigger investments. The entities include both direct lenders to mortgage brokers. These lenders provide financing to people seeking mortgage loans. 

However, a mortgage broker is an intermediary who can help you identify the best lender for your needs. On the other hand, a direct lender can be a bank or a private financial institution. However, you will have to qualify for each lender’s requirement to secure the loan.

Mortgage Broker

If you are ready to secure a mortgage, you may want to speak to a mortgage broker. A mortgage broker does not lend money but acts as a middle man. The goal is to help you compare different loan options available in the market and pick one that suits your financial needs and budget. 

For this, a mortgage lender will sit down with you to gather documents and other important information required by the lender. Typically, you must provide 

  • Income

  • Pay stubs

  • Tax returns

  • Details of your assets and investments

  •  Credit reports

A lender will use this information to determine your eligibility to borrow.

Once you hand over all the documents, the lender will forward your information to the banks and other lenders.  Your broker will also be responsible for communicating with the lender and you during the entire process of loan approval.

Direct Lender

A direct can be a private entity of a financial institution offering mortgage loans. A direct lender can be a bank or a private financial institution. You can also get online lenders these days, such as Loan Direct and Quick Loans. You can now complete the entire loan processing online. 

It is a good idea to work with a lender you have done business with in the past. The longer your relationship, the more favorable services you will receive. 

However, going to the direct lender cuts out the intermediaries and may also quicken your loan processing. As the lender deals directly with the borrowers, you can communicate more effectively than speaking to a mediator and then waiting for replies. 

With a direct lender, you can get answers to your questions right away.  Now you do not have to rely on a broker to forward your question to the bank or lender and then get back to you in their own time. 

Remember, your goal should be to find a direct lender offering the best rates. However, there is a certain pitfall when you choose a private lender. Dealing directly with a lender and removing a mortgage broker from the equation may be a hassle when applying for a mortgage loan with multiple vendors. Imagine the amount of paperwork and other associated hassles.

 

Some Important Differences

When it comes to direct lenders and mortgage brokers, compensation plays a very critical role. You pay a mortgage broker based on a fee schedule. However, in most cases, the origination fee a bank or lender charges you will be handed over/paid to your mortgage broker. 

The total sum of this amount is dependent on the amount of your loan. This can influence the research and advice your mortgage broker offers. For instance, you may work with a commercial-based financial planner working mainly or partially with specific lenders only. Therefore, this mortgage broker will only offer you options available with the lenders he works with. 

In comparison to that, a direct lender will charge you various fees, such as loan origination fees. This direct lender will also make money from the interest you will pay on top of the principal amount of your loan. Other charges include late fees and any other associated fees required for closing the loan. 

You can always get a good idea of how to pay your lender through Good Faith Estimate (GFE)

Special Considerations

You are not under any obligation to choose if you must use direct lenders or mortgage brokers. It is completely up to you based on your needs and circumstances. It is not a bad idea to actually get in touch with both and see who offers you the best deals with the best rates. A comparison like this will allow you to make a better decision when it comes to securing a mortgage loan. 

A traditional bank is a great place to start your searches.  This is especially helpful if you have a good relationship with your bank. Plus, if you want the loan process to be hassle-free, you can contact a mortgage broker who will apply for loans with different banks while you get on with your life. 

This is a great option because you may find an ideal loan that would not have been possible by your own bank. However, you can always ask the mortgage broker about the reason why they recommend a certain lender to you. 

That said, not all mortgage brokers are equally credible. Therefore, you must be very careful when selecting a broker you wish to work with. Make sure that a mortgage broker does not find or recommend a high-risk mortgage to you. Remember, the more loan you get, the higher the mortgage broker's commission will be. So, do not jump right in; sit back, understand everything and then decide whether you wish to move forward with the recommended loan process.