When applying for a mortgage, how do you know whether to go to a mortgage broker or a direct lender? What’s the difference between the two and which is better? Well, the decision on which one to go to is ultimately up to you. Direct lenders and mortgage brokers have quite a bit in common, but they are also different in some fundamental ways.

Both brokers and direct lenders conduct marketing campaigns to attract clients. Both can gather information on your financial situation in order to determine whether to lend money to you. And both can help you better understand the mortgage process and clarify any legal disclosures to you. However, there are some basic differences between mortgage brokers and direct lenders that you should be aware of.

Number of Lending Sources

Mortgage brokers may represent several lending sources as opposed to direct lenders who are a single lending source. Brokers act as intermediaries between you and several lenders. While this may be helpful if you would rather shop around for different lenders through a “liaison,” there may be some downsides to using a broker. Dealing with an intermediary can increase the time it takes to close your loan as well as have other drawbacks, which you’ll understand as you read further.


Direct lenders are typically licensed to lend funds in all 50 states whereas brokers may only be licensed in a handful of states. This can become problematic if the property you’re buying is in a state the broker is not licensed in. In this case, it may be easier to go with a direct lender.

Mortgage Rates and Guidelines

Many people believe that mortgage brokers are able to offer lower rates than direct lenders. The truth is that all mortgage rates are based on what happens in the secondary market–basically that means every lender gets their rates from the same place. Therefore, interest rates may be just as competitive whether you go with a direct lender or a broker. Even if there is some difference in rates, say an eighth or a quarter of a percentage point, that’s not significant enough to affect your monthly payment all that much.

Plus, brokers are subject to the guidelines of the lenders they work with, so it may not necessarily be easier to go with a broker over a direct lender. In fact, a direct lender may be a bit more flexible since they are the ones who set their own guidelines–they may be able to waive certain guidelines at their discretion in order to gain your business. A broker cannot do this without permission from the lender.

Mortgage Fees

All lenders must charge certain fees and costs for processing the loan. But in order for a broker to make money, they have to charge more because they are the ones doing the work for you. This means you’re paying the broker’s fees on top of the lender’s fees, so it may be more expensive to go with a broker. It’s akin to having to make an improvement or repair on your home–it’s going to be more expensive for you to hire a contractor than it would be for you to do it yourself because you’re not only paying for the materials, you’re paying for the labor.

Sub-Prime Mortgage Lending

The sub-prime market has suffered some heavy strains recently and considering that, it may or may not be better to work with a mortgage broker over a direct lender. The guidelines for sub-prime lending have become quite constricted, so if you’re looking for a mortgage and have bad credit, you may have problems finding a broker that can lend to you. Even some direct lenders who specialize in lending to people with less-than-perfect credit have either suffered seriously or have even shut down completely. There are many direct lenders available who do much more than sub-prime lending who are largely unaffected by the effects of the sub-prime market.

Many people choose to work with mortgage brokers and direct lenders alike, depending on their individual situation and needs. There are benefits to using either when applying for a mortgage. But because brokers are intermediaries between you and direct lenders, it may be more time-consuming and more costly for the reasons stated above. But having the facts will make it easier for you to make your decision.

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This Post Has 6 Comments

  1. A broker refinanced four of my properties eithout my knowledge or permission.
    They wsrd prepsid for a year so it was premeditdd ancd consequence was all my equity and properties and mh himd of thirty years lost and me and children homeless.

    1. Nancy,

      Sorry to hear about your situation. I would recommend getting the local authorities involved because that sounds illegal. Good luck.

    2. As a mortgage broker myself I find your comment hard to believe. It is by law that the borrower needs to sign off on the Good Faith Estimate or Loan Estimate before the loan can proceed. How can the borrower not know?

      When you compare mortgage brokers to direct lenders all costs are combined into one rate and is shown as the APR. Just compare the two and you will know.

      1. Ben I am still confused about the differences between a direct lender and a mortgage broker. I am ready to purchase a home but can’t seem to pinpoint the difference between the two. My main concern are the cost factors. Does a broker have additional fees involved? The bottom line fees is all I care about. Can you assist me with an answer? Please. Thank you in advance for any assistance you may offer.

        1. Hi Carol:

          Mortgage brokers take your information including income and credit history along with assets and shop your lead around to several different mortgage lenders. There may be a fee involved for this service. When you go with a direct lender like Quicken Loans or anyone else, you can do the shopping yourself and it’s one less fee. If you would like to check out the options we can offer you for yourself, you can share some information with us through Rocket Mortgage. If you would prefer to get started over the phone, one of our Home Loan Experts would be happy to take your call at (888) 980-6716. Hope this helps!


        2. Hi Carol,
          There are various benefits of contacting a mortgage broker as they have access to various lenders. When it comes to getting the best mortgage rate then choosing an expert and professional mortgage broker is of high importance because – a mortgage broker is the one who will give your application to the right mortgage lender or bank based on your financial situation, budget and needs so that you can get the best deal for your home. You can thus save your time as well as money as you need not to go again and again to a lot of banks and look for their mortgage plans and rates. The best mortgage broker will shop for the best mortgage for you and you need to worry at all.

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