Mortgage Broker vs. Direct Lender

When you're looking to get a mortgage loan, you may work with a mortgage broker, or you may choose to work with a direct lender. It is important to understand the difference between the two so that you know which source can provide you with an edge in obtaining the most cost effective mortgage.

A mortgage broker is an individual or firm that acts as an independent agent for both the borrower and the lender of a mortgage loan, which can be a bank, trust company, credit union, mortgage corporation, finance company or even an individual private investor. These lending institutions will allow the mortgage broker to sell their wholesale rates for them at a substantial discount. As such, these wholesale rates are much lower than what these same lenders will offer you at their retail branches. Also, a broker is usually approved with hundreds of lenders, including all of the major lenders, so they are able to shop a vast resource to make sure they are offering the lowest rates and fees. They can do this in a short amount of time, so this can save you lots of time and headache. The broker will also gather from you all of the documentation that the lender will require to qualify, and will professionally arrange and submit it to the lenders underwriter so that it has the best chance at approval. He or she will receive a commission from the lender if the loan closes.

A direct lender is somewhat limited since they can only offer their own rates. These rates may, or may not be, competitive. They also only offer retail rates which will usually be higher than the wholesale rates that a broker can offer. A direct lender can however offer the comfort of dealing with your local banker where a long standing relationship may already exist. Also, even though their interest rates are marked up, they will not fluctuate as much from day to day due to market volatility, since they already have a cushion (mark up) built in.