Most people will need to borrow money in order to purchase a home. I know I do not have hundreds of thousands of dollars that I can spend on a house. Instead of trying to save money to buy a house outright, millions of people take out a mortgage. When starting the search for a mortgage people will discover there are two different categories of lenders to choose from. They can get their loan from a mortgage broker, or they can use a mortgage lender.
Mortgage Brokers
A broker is a loan initiator that does not have direct ties to one company. So for those who want to find the best rates on the market, and are not particularly worried about which institution lends them money, the broker will be able to find those offering the lowest interest rate. The catch is that often the fees are a little higher when using a broker. Since they do not service the loan, the broker is paid on commission. And with the use of one more person the closing costs are a little higher. These fees are often not seen when dealing directly with a lender. Simply put: the broker will be a representative of the borrower to the lending institutions.
Mortgage Lenders
A lender, on the other hand, is someone who sells their own mortgages. The lending institution will be pushing their own products, and by doing so they will end up collecting on the interest payments made by the borrower each month. With all the work done in one place, and as few third parties to deal with as possible, the lenders are able to provide the loans with the lowest fees possible. The downside, of course, is that they only offer their product, so the interest rate might not be the best the borrower can get. Simply put: the lender will be a representative of the company to the borrower.
Choosing whether to use a lender or a broker ultimately comes down to a case-by-case situation. Neither is particularly better than the other. While the broker is able to find the best rates on the market, the lender is able to offer the loan with fewer up-front fees. For those who are looking to sell their house within a few years, higher interest and lower fees may be better; for those looking to stay in their home longer, they may benefit from lower interest and higher fees. For those who need to get a subprime mortgage, they may not have a choice but to use a broker than specializes in those types of loans.
When shopping for a loan, the best thing to do is to go to both a mortgage broker and a mortgage lender, get a quote from each one, compare the APR’s they offer, then make the decision. All loan initiators must follow the same rules and regulations set forth by the government. In the end, you the borrower gets to choose who you want to work with, so find the loan that suits your needs the best.
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The only problem with going to lenders, especially if you want to get the best rate, is that you will have to sit down, talk to multiple lenders and they’ll each run a credit check on you, which may or may not impact your credit score. I’m not sure if it’s the same when using a broker.
We ended up needing to use a mortgage broker since the regular banks would not lend to us very easily. Apparently self-employment does not make banks feel all warm and fuzzy. 🙂
We used a mortgage broker when we bought our home. One advantage to a broker is a good one will have relationships with lenders already and they know the entire process for the loan. A greta broker will be able to walk you through all of the forms and applications you need to fill out (and there will be a lot).