This difference between a broker and a lender is an important one when planning to purchase or refinance your home. Both are licensed and highly regulated professionals who specialize in mortgage lending. However, the level of service they provide is quite different. Typically, the one you should choose depends on your financial picture, how fast you need to close your loan and which type of loan you need.
What is a mortgage broker?
A mortgage broker has indirect access to the money your need for your mortgage and will bring borrowers together with a lender acting as an intermediary. A broker doesn’t approve a loan or lock an interest rate. They will take your application, but generally, the processing, underwriting, closing, and funding will all be done by the lender. While a broker does have limitations, they can provide an important function. Since a broker works with many lenders, they can shop around to match the specifics of a borrower’s transaction to the right lender.
Things you should know about a mortgage broker
- A mortgage broker brings borrowers and mortgage lenders together by acting as a middleman between the two.
- Brokers can help if you want to shop around without the hassle of contacting multiple lenders on your own.
- If you have been denied at your local bank or a mortgage lender, then a broker could be a good option if you have.
- A broker could be a good option if your loan contains variables that are a little less traditional (if you have a complicated income history or credit issues.)
- A broker relies on the lender to make the final loan decision
- A broker can’t make ANY credit decisions for complex loan applications and relies entirely on the lender’s underwriting.
- A broker doesn’t fund the loan, which may create delays in closing
What is a mortgage lender?
A mortgage lender is a financial institution with direct access to the money needed to fund mortgages. Using a lender allows you to remove the middleman. In many cases, the lender approves the loan, coordinates the closing, creates your closing documents, wires the funds to your closing, and otherwise manages the transaction from beginning to end without any other third parties. The lender’s value is in the control over the transaction, interest rate, and borrower experience.
Things you should know about a mortgage lender:
- A lender can approve your loan application and provide money to you directly.
- You’ll usually make your first payment directly to the mortgage lender after your loan closing.
- Mortgage lenders only offer home loans — you won’t find options for checking accounts, credit cards, or car loans.
- Mortgage processors and underwriters work for the lender. Closing and funding of the loan are handled internally.
- Documents can be uploaded to one central processing site.
- Mortgage lenders are financial institutions that approve and finance mortgage loans. They do not offer any other banking services.
- A lender is a good option if you have bad credit or complicated income
- A lender is a good option if you need to have a final decision on a loan quickly
- A direct lender can’t offer interest rate discounts based on your deposit balances because they don’t offer deposit accounts
There are other options which include retail banks with local offices and credit unions. Many people like this option because they have all their banking in one place. If your financial picture is straightforward, there is a good chance you could be well served at your local bank or credit union.
Which option is best?
Both lenders and brokers perform important functions for the borrower, but brokers are limited in what they can and cannot do. Brokers can assist borrowers greatly throughout the process, but again, there is little control over the transaction as an intermediary. There will be more paperwork with a mortgage lender, but the lender controls the transaction directly. The potential borrower must know the functionality of two different channels to decide which is better for them.
At Mortgage Equity Partners, we feel it is important to offer both channels to the potential borrower. While most of our transactions are done through our lender channel, we feel strongly about our ability to provide the broker channel to our borrowers. As an organization committed to assisting borrowers obtain the best possible home financing experience, being a lender allows us to process loans quickly and efficiently, providing an outstanding experience for our borrowers. Offering a broker channel gives us more product and program options in the event borrowers need alternatives.
Ultimately, it is the quality of the loan officer managing your transaction that will matter. Our experienced loan officers have the integrity, product knowledge, skill, and aptitude to make the best recommendations for you.