You’ve reached an exciting life milestone: you’re ready to buy a house. But before you start mentally redecorating and comparing school districts, you’ll need to get your finances in order and consider your mortgage options.
Many homebuyers find it useful to get pre-qualified for a mortgage before they even start house hunting. Shopping around for the best home loan can help ensure you get a mortgage that fits your needs, whether through a direct lender or a mortgage broker.
There are two major options for obtaining a mortgage: direct lenders and mortgage brokers. Both will likely look at your credit history, income, finances, and overall debt obligation as part of the mortgage application process. But the two home loan providers vary in other ways.
Mortgage brokers are essentially middlemen for a variety of lenders, which means they can offer multiple mortgage quotes for you to consider. Direct lenders are the actual lenders of the home loans, so they typically keep the entire process in-house, from loan application to servicing. Banks and non-traditional mortgage lenders are all considered direct lenders.
What Do Mortgage Brokers Do?
Mortgage brokers have access to loans from a number of lenders. That means you would simply go through the mortgage application process with the broker and they would then provide you with multiple mortgage options that meet your needs. (Once you’re approved, you’d then deal with the lender or loan officer directly.)
What Do Direct Lenders Do?
A direct lender is the actual mortgage provider lending you the money to buy a house. That could be a traditional bank, a mortgage banker , an online mortgage lender, or even a savings and loan association.
Going through a direct lender means the person approving your mortgage application is also involved in funding it, so they can do everything in-house. While they typically do all the loan processing, underwriting, and closing, direct lenders may sell your mortgage on the secondary market.
Pros and Cons of Mortgage Brokers
Because mortgage brokers are able to offer a variety of quotes from different sources, they can be useful if you’re looking to easily and quickly compare mortgage options.
Mortgage brokers can conceivably find more competitive mortgage rates than direct lenders because they are paid to shop for the best rates and loan programs. They can save you quite a bit of time because their job is to hunt down multiple loan choices and find a lender that will be a good fit for their customers.
Mortgage brokers should be able to navigate the variety of mortgage products to find one that best fits your needs, even if you have financial concerns like a slightly lower credit score or student loan debt. Mortgage brokers are paid by either the lender or the borrower—but not both.
You’ll want to ensure your mortgage broker is properly credentialed before working with them. Checking with the National Association of Mortgage Brokers is a good place to start.
Pros and Cons of Direct Lenders
Since a direct lender both originates the loan and processes your mortgage application, the entire mortgage process is usually all in one place. This may make it easier to get questions answered or troubleshoot anything that comes up. A direct lender can sometimes be an online lender, who will potentially expedite the application process. However, because you would have to go to each direct lender individually for loan approval, it’s typically much more difficult to comparison shop.
Okay, but What Works for My Situation?
Either a direct lender or a mortgage broker can provide you with viable home loan options. Before choosing, you can ask for quotes from both and compare. If you have credit issues or specific financial needs, a mortgage broker might also be able to help find you a lender that meets your needs. And again, it can save on comparison shopping time and energy.
A mortgage broker can also be good for comparing many quotes easily, if you don’t have the wherewithal to shop around yourself. But if you have an existing relationship with a financial institution, solid credit, and want the home loan approval done more quickly or to save on fees, then going through that direct lender may be your preferred route.
A direct lender doesn’t mean you have to go with a traditional bank. There are online direct lenders, as well, that can quickly process your mortgage application and potentially get you a low interest rate home loan. SoFi is an online direct lender that offers mortgages with as little as 10% down and competitive rates.
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SoFi Mortgages are not available in all states. Products and terms may vary from those advertised on this site. See SoFi.com/eligibility-criteria#eligibility-mortgage for details.
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.