November 26th, 2014
Receiving a mortgage is a necessary step for the vast majority of people in the market to buy a home. While it may be necessary to secure a mortgage, it’s just as important to pick the “right” one. This means getting the best deal, less you wind up overpaying every month of every year for the next three decades. This is why it’s important to understand the difference between a mortgage broker and mortgage lender, so you’ll have a better shot at choosing the party that will best serve you.
What Is a Mortgage Lender?
A lender is the party that provides the borrower with the money they need to secure a mortgage. In exchange, the mortgage lender is given a note that serves as evidence of the borrower’s debt as well as outlines their obligation to repay. The lender also receives a lien on the property.
Mortgage brokers are not in the business of lending. Instead, their area of expertise is helping borrowers find lenders that will offer them the money they need for their mortgage and the best deal on those funds. They operate as independent contractors.
Amongst other things, this means a broker will counsel borrowers in understanding the advantages and disadvantages associated with each lender. They also help borrowers if they run into any common problems with securing a loan. This could mean simply qualifying for one, dealing with issues regarding their credit, filling out the application and much more.
Some lenders handle the entire origination process by themselves, meaning they help borrowers with some of the aforementioned challenges. These are known as retail lenders. Others, called “wholesale lenders”, use mortgage brokers for this. Large lenders tend to have both versions available.
The Benefits of Mortgage Lenders
Most homeowners tend to go right to mortgage lenders, if for no other reason than because they already have a connection with them. These are generally the banks they’ve been using for years, so they’re already familiar with the lender. Usually, banks will offer their preexisting customers special rates as well.
This is due, in large part, to the fact that the bank already knows the customer, too. They have plenty of important information for them on hand, like, for example, the balances of their savings and checking accounts.
The Benefits of Mortgage Brokers
However, those with a bad credit history or other financial skeletons in their closets will generally run into problems with these traditional investors. The same can also be said for those who have unique situations in terms of the property they want or the financing they need. This tends to be less of an issue with mortgage brokers, because they’re simply use to this situation more. After all, if the banks won’t finance those who want homes, that creates a pretty decent sized market.
On top of that, mortgage brokers often offer better interest rates. It helps that they’re not beholden to any one practice as far as rates go, as they show their customers what a number of different lenders are charging. Along the same lines, they also do the majority of the legwork.
Of course, you have to know that brokers are making money off your need for a mortgage, too. So while they may help you find the most affordable loan out there, you’re still paying extra because of the work they did. This could still be worth it, though, if you would have otherwise chosen a much more expensive version.
In the end, if you have good credit and a solid relationship with your bank, it might make the most sense to go with a mortgage lender. On the other hand, if you need a little help with financing, aren’t getting a great rate from your bank, or have a unique situation with the property you want, a broker is probably the way to go.