Shopping for a mortgage loan can be a long, drawn-out and energy-consuming process. Gathering all of your financial information, pulling your credit score and finding the lowest rate at the best cost can be challenging to do without help.
Luckily, there are many different services available to assist you with getting a mortgage. Mortgage bankers, mortgage brokers and direct lenders are all experts in the home buying industry and can help you throughout the entire mortgage process. However, each type of lender functions differently than the others, meaning your rates and closing costs could vary depending on the service provider you choose to work with.
Direct Mortgage Lenders
The main advantage of working with a direct lender is the relationship you’ll have with the loan officer you’re working with. Once they become familiar with your financial situation, they’ll work with you one-on-one to figure out the best mortgage scenario possible.
Direct mortgage lenders generally only offer mortgage-related services, making them more specialized than banks, which typically handle multiple services at a time.
An ethical mortgage lender will provide you with a detailed analysis of their financing proposal and explain what you should expect between initial application and the closing process. Another main advantage of working with direct mortgage lenders is that they’re more flexible when working with those who have lower credit scores. Banks tend to be more rigid with their credit score requirements, while direct lenders typically work with credit scores 20 to 40 points below what banks are willing to work with.
Mortgage brokers essentially work as the middleman or liaison between you (the borrower) and the direct lender or bank. Once you provide them with all of your financial documents, they will set out and shop different institutions in order to find the best mortgage terms for your situation.
The main advantage of working with a mortgage broker is that they do the shopping for you. However, they do charge for these services and, in many cases, your closing costs will be higher with a mortgage broker than with a direct lender or a bank.
Working with a bank to handle your mortgage is similar to working with a direct lender, except banks are more rigid with their guidelines and mortgage terms. Although, having your mortgage at the same place you do all of your banking can be a convenience.
There is a common misconception that your bank will service your loan forever, but the truth is most mortgage loans are transferred to a new servicer three or four times throughout the life of the loan.
Most people don’t realize that mortgage loan officers at banks are not licensed, but loan officers who work for a direct lender or a mortgage broker are. This generally means that loan officers at banks are less experienced and/or knowledgeable than their counterparts at direct lenders or mortgage brokerages.
By doing a little research ahead of time, you’ll be able to find a lending partner that can meet your needs and guide you through the home buying process.