If you were buying a home in the past, you typically went to a bank or a credit union for a loan. However, as of today, there are many more lending options available to you. It’s important to make sure you understand what each type of lender offers, as purchasing a home is likely the biggest purchase you’ll make in your life. The two main choices available are direct lenders and mortgage brokers. Each option has its own pros and cons, which will be discussed in depth.
A direct lender is a company that directly finances you for your mortgage loan. Credit unions, banks and non-bank lenders are all included in this category. Although, a direct lender finances your mortgage for you, the institution generally sells your loan on the secondary market. This is how the lender makes back the money it allowed you to borrow. Banks generally package many mortgage loans together, and then sells them as a package deal to an investor. As long as you deal with a state and federally regulated lender, then this is a non-issue for you.
A few benefits of working with a direct lender are speed, saving money and a straightforward, easy process. Since you’re working with a lender that has the direct power to either approve or deny your loan, the process is generally quicker than going with a mortgage broker.
You may also save money on your mortgage with lower fees. This is because you’re dealing directly with the lender, which means that no one else is taking a commission fee for helping you make the deal.
Finally, the process is generally easier when you’re dealing with a direct lender, as you’re usually only dealing with one or two people, and you can often visit the financial institution in-person for a face-to-face interaction.
One of the downsides to working with a direct lender is that you only see one offer presented, unless you manually shop around and get quotes from other lenders.
Instead of focusing on a specific local mortgage lender in Phoenix AZ, a mortgage broker helps connect you with multiple lenders. The benefits of dealing with a mortgage broker is a better chance of qualifying for your loan, seeing a wide range of offers and a speedy application process.
You have a better chance of qualifying for the loan because the broker sends your application out to many different lenders. This increases the odds of getting an approval. Secondly, since your application goes out to multiple lenders, you see a wide range of offers, which may help you find a lower interest rate. Finally, the broker handles the hard work for you, saving you the time and energy of going from bank to bank shopping around.
One of the risks of working with a mortgage broker is that the broker may try to put hidden costs into your contract in an effort to make more money. You can avoid this issue by diligently reviewing your contract, or even discussing it with a lawyer for further peace of mind.