If you need to borrow money to buy a new home, you’ll have to take out a mortgage. You will get money from a lender, but you might also want to work with a broker. It’s important to understand the distinction so you can choose the option that’s right for you.
What a Mortgage Lender Does
You will seek a mortgage from a lender, a financial institution that grants loans. It can be a bank, credit union or online lender. If you get approved for a mortgage, a lender will give you money to buy a home. You will have to make monthly payments to cover principal and interest on the loan.
What a Mortgage Broker Does
A mortgage broker doesn’t lend money to homebuyers, but a broker can facilitate the process of obtaining a mortgage. Brokers often work with multiple lenders. A broker can gather information about your income, credit score and other financial details and submit applications on your behalf.
Pros and Cons of Working With a Lender Directly
Applying for a mortgage yourself can expedite the mortgage approval process. You will submit required documents to a lender, and the institution will contact you if it needs additional information. You will be able to get in touch with the lender to check on the status of your application.
It’s a good idea to request quotes from several lenders to get the best terms available. That can be a daunting and time-consuming process, especially if you’re a first-time homebuyer.
Pluses and Minuses of Working With a Broker
A mortgage broker can save you time and eliminate much of the stress associated with seeking a home loan. Instead of filling out several applications yourself, a broker can do it for you.
Financial institutions are sometimes reluctant to work with borrowers who have blemishes on their credit reports or refuse to approve loans for certain types of properties. A broker can identify lenders that are most likely to grant you a mortgage so you won’t waste valuable time applying for loans from companies that are unlikely to approve them.
Some lenders only work with mortgage brokers. If you go through a broker, you might receive loan offers that you couldn’t get if you handled the process on your own. On the other hand, some brokers work with certain preferred lenders and tend to steer their clients toward companies that pay higher fees to brokers, even if those lenders aren’t necessarily the best fit for borrowers.
Compare Costs Before Making a Decision
If you go through a lender directly, you will be required to pay a loan origination fee and other charges. You will have to pay a fee if you get help from a mortgage broker. Compare fees for lenders and brokers in your area, think about whether you’re comfortable filling out several loan applications yourself and decide which option is right for you.
