Getting a mortgage is a crucial part of the home-buying process, but there are multiple ways to do it. You can either work with a mortgage broker, who acts as an intermediary between you and a lender, or you can work directly with a lender yourself.
What is a mortgage broker vs. a lender? The key difference is their role. A lender actually loans you the money to buy a home, whereas a broker helps you find and work with a lender. Deciding whom to work with during your home-buying process is a matter of personal preference. Read on to learn which factors to consider.
Key Takeaways:
- When financing a home purchase, you can either work directly with a mortgage lender or hire a broker to act as your intermediary.
- Mortgage brokers connect you with lenders and help you compare various loan options. Brokers may not work with every lender, however, and you may have to pay them a brokerage fee.
- If you’re comfortable navigating the application process yourself, you may choose to work directly with a lender. If you go this route, be sure to shop around for the best rates before choosing a lender.
- If you want support in finding a lender and navigating the mortgage process, working with a broker may be the better option.
What Is A Mortgage Lender?
A mortgage lender is a financial institution that loans you money to buy a home or refinance your existing mortgage. Major banks, local credit unions and online lenders are all examples of mortgage lenders.
What To Expect When Working With A Mortgage Lender
Working directly with a mortgage lender gives you an opportunity to have a relationship with the company that loans you money. If you choose to work directly with a mortgage lender, you should shop around and compare rates. One advantage of working directly with a lender is that you can apply for a mortgage from anywhere. It’s up to you, however, to do your research to find the best loan.
If you want to apply for a mortgage with various lenders, you’ll have to fill out each lender’s application. Because you’re cutting out the middleman of a broker, you’ll be able to contact the lender directly if you have any questions throughout the process.
When you apply for a mortgage, the lender will provide you with a Loan Estimate. This document includes your estimated interest rate, monthly payment and closing costs. If you apply with multiple lenders, you can compare these documents to choose the best loan for you.
If the lender is also the servicer of your loan, you’ll continue that relationship as you make your monthly mortgage payments.
Pros And Cons Of Working With A Mortgage Lender
Working directly with a lender during the home loan process has both benefits and drawbacks. Below are a few pros and cons to consider:
Pros
- You have a direct line of communication with the institution issuing your mortgage.
- You may experience a more streamlined process, as the lender handles underwriting, loan processing and closing in-house.
- You have more control in deciding which mortgage lenders to work with.
Cons
- When you work directly with a lender, you may miss out on wholesale lenders you can only access through brokers. Wholesale lenders sell mortgages to third parties, and their overhead savings mean they often offer lower interest rates.
- Applying for a mortgage with several lenders can take more time, especially if you don’t have the right documentation in order.
- You’re responsible for understanding how the application process works, as you won’t have someone there to walk you through the process.
What Is A Mortgage Broker?
A mortgage broker is an independent financial professional who acts as a liaison between you and the mortgage lender. Unlike mortgage lenders, brokers don’t loan you money. Instead, they connect you with lenders and help you through the loan application process. They can also assist by pulling your credit history, verifying your income and employment history, and using that information to apply for home loans on your behalf.
What To Expect When Working With A Mortgage Broker
From start to finish, brokers can walk you through the process of applying for a loan.
A mortgage broker is likely familiar with how different lenders handle mortgage applications and may be able to help speed up the process.
Once you’ve selected a lender, your broker can also act on your behalf to handle any back-and-forth conversations about your loan.
When it’s time to close on your loan, your broker will work with you, your lender and your real estate agent to make sure you close your loan smoothly and on time.
Similar to working directly with a lender, choosing a broker requires you to do some due diligence. You want to work with someone you trust who will help get you the best loan possible. Start by asking local friends and family for broker recommendations in your area.
Keep in mind that working with a broker can limit your loan options, since brokers may work with a select group of lenders only. Finally, while lenders sometimes pay a broker’s fees, that cost may fall on you. For this reason, make sure you understand how a broker gets paid before deciding to work with them.
Pros And Cons Of Working With A Broker
Weigh the following considerations if you’re thinking about hiring a broker:
Pros
- Brokers have access to multiple mortgage lenders and make it easy to compare loan options. Plus, they can answer your questions along the way.
- Brokers can give you a good sense of how you’ll qualify with different lenders.
- A broker can help you gather and organize the documents needed for a mortgage application, speeding up the process.
Cons
- Brokers only work with certain lenders, so you may have more limited financing options if you take this route.
- Depending on the broker, you may be responsible for paying their brokerage fees.
- Since some brokers are paid by lenders, they may prioritize their commission over finding you the best interest rate.
What’s Your Goal?
Buy A Home
Discover mortgage options that fit your unique financial needs.
Refinance
Refinance your mortgage to have more money for what matters.
Tap Into Equity
Use your home’s equity and unlock cash to achieve your goals.
How To Choose Between A Mortgage Broker And A Lender
Deciding between a mortgage lender and a broker comes down to your personal situation and goals in approaching the home loan process.
If you want to be in charge of comparing lenders and mortgage interest rates, working directly with a mortgage lender may be the better option for you. Also, if you have an existing relationship with a financial institution that helps you qualify for good loan terms, you may not feel the need to work with a mortgage broker.
However, if you’re a first-time home buyer who’s unfamiliar with the mortgage lending process, a broker can be a big help. They can simplify the mortgage application process and do most of the heavy lifting when comparing options to find the right lender for your needs.
Ready To Become A Homeowner?
Get matched with a lender that can help you find the right mortgage.
Mortgage Broker Vs. Lender FAQ
Consider these common questions when choosing between a mortgage broker and a lender.
The Bottom Line: Choosing Between A Mortgage Lender Vs. Broker
When securing your home loan, you get to choose whether you want to work with a mortgage broker or directly with a lender. Working with a lender means you’re responsible for comparing loans on your own, while hiring a broker gives you more support through this process. The best option for you depends on your priorities and your comfort level with the home-buying process.
Ben Shapiro
Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.
