Today, finding the right mortgage lender may mean more than going to your local bank. Years ago, that’s all you had to do. Your local bank knew you and could get you approved for a loan. If they didn’t approve you, it was much harder to find a loan.
Today, you have hundreds of options. Your local bank is still an option, but it’s not the only one. You can use other banks in the area, credit unions, and mortgage lenders. You can also try a mortgage broker. A broker has access to hundreds of mortgage lenders. It’s probably more than you could ever get your hands on operating on your own.
The Benefits of the Direct Mortgage Lender
If you opt for a bank, credit union, or mortgage lender, you are dealing with them directly. You either go to the bank in person or apply online. You talk with a loan officer that works in that bank. That loan officer has direct contact with the underwriter that works on your loan. This method offers you many benefits:
- You only have one entity to deal with when you have questions. You can call the bank directly and speak with the person/people working on your loan.
- Loans are usually underwritten and processed fairly quickly when you go directly to the lender.
- You may reap larger savings if you already do business with the bank in another capacity. Banks want to retain their clients, so they offer multiple product discounts in some cases.
Chances are, if you use a local bank, you know of them and their reputation. If you don’t do business with them, you probably know someone that does. You can easily gain referrals and reviews on the company without reading anything online. Sometimes an in-person review is the best one to receive.
The Downside of the Direct Mortgage Lender
Going directly to the bank or credit union does have its downfalls.
Most importantly, you likely have limited loan choices. Banks often specialize in one or two types of loans and that’s it. They don’t have numerous choices simply because they fund the loan and keep it on their books. If they do write FHA or conventional loans that they sell on the secondary market, they may limit the loans they keep in-house. It’s usually one or the other, not a large combination of both.
If you have a unique circumstance, you may have trouble securing approval from a bank with limited options. If they do turn you down, don’t think you’ll be without a loan. There are other options out there, including the mortgage broker.
The Benefits of a Mortgage Broker
A mortgage broker is like a middleman between you and hundreds of banks. The mortgage broker works for you and the bank they represent. You deal only with the broker – you don’t ever talk directly to the lender. This requires a little back and forth between everyone involved and can create some confusion. However, there are benefits of using a mortgage broker:
- There are many more programs to choose from. This can help if you have a unique circumstance that makes it hard to get you approved.
- The broker usually knows which lenders will suit you the best given your circumstances. This can cut down on the back and forth time. It can also eliminate some of the stress that a loan denial can cause.
- Brokers can often negotiate closing costs a little more since they often receive a premium from the lender that funds your loan.
The Downsides of the Mortgage Broker
Unlike the direct mortgage lender, you probably don’t have a relationship with the mortgage broker. You take a risk when you choose a broker. It’s best to read reviews or talk to friends that just got a mortgage. This can help eliminate the risk of working with someone untrustworthy as can happen when using brokers.
If you have a lot of back and forth you have to do with the broker, it can be frustrating. The loan process can take longer simple because the broker has to go back and forth between you and the lender. This can increase some of the confusion or delay the closing process. Using a broker that is experienced can help cut down on some of this risk.
Choosing the Right Mortgage Lender
Now you know the difference between the different lenders. How do you choose the one that’s right for you?
Use a Direct Mortgage Lender if:
- You have a straightforward mortgage application
- You don’t have any special circumstances
- You have great credit
- You have a good debt ratio
- You have steady employment/income
- You are using the same lender you used before
- You prefer direct contact with the lender
Use a Mortgage Broker If:
- You have a questionable credit score
- Your mortgage application is unique
- You are self-employed
- You have inconsistent income
- A mortgage lender turned you down
- You recently changed jobs
Basically, a mortgage lender needs a straightforward situation with no exceptions. A mortgage broker can handle more unique situations because of the vast resources they have available to them.
Finding the Right Lender
Once you narrow it down to a mortgage lender or broker, you’ll still have choices. In fact, we recommend applying with at least three banks or brokers. This way you know you are getting the best deal available. Some lenders charge more than others and some banks will downright deny you a loan. this doesn’t mean there aren’t other choices out there.
When you get quotes from at least three lenders, you can compare the offers. Don’t look just at the interest rate. Look at the big picture. Compare the APRs and the total fees charged. Look also at the term of each loan. It doesn’t do you any good to compare a 30-year fixed rate loan to a 3/1 ARM for example.
Take your time and determine which loan is right for you. Whether it’s a direct mortgage lender or broker, you’ll end up with a loan you’ll carry for many years. Make your decision carefully so you get the loan that’s right for you.