mortgage broker vs. lender?

Question

Could someone please explain to me the difference between direct lender and broker. On the radio, lot of folks claim that they are a direct lender which they can make their own decisions. However, I keep thinking that a direct lender is someone big like BoA and WAMU
Thanks

Answer 1

This is a great question and the answer isn't the easiest to explain. The short answer is that direct lenders actually give you the money you borrow and brokers set up the loan for a direct lender to then give you the money you borrow. Does that make sense?

I work for Quicken Loans. We are a direct lender.

Think of brokers as middlemen between you and a direct lender. Brokers act as marketers and sales people between mortgage customers and lenders. Brokers can almost be considered a private sales force for direct mortgage lenders.

Both can gather information on your financial situation in order to determine whether to lend money to you. And both can help you better understand the mortgage process and clarify any legal disclosures to you. However, there are some basic differences between mortgage brokers and direct lenders that you should be aware of.

Mortgage brokers may represent several lending sources as opposed to direct lenders who are a single lending source. Brokers act as intermediaries between you and several lenders. While this may be helpful if you would rather shop around for different lenders through a "liaison," there may be some downsides to using a broker. Dealing with an intermediary can increase the time it takes to close your loan as well as have other drawbacks.

Direct lenders are typically licensed to lend funds in all 50 states whereas brokers may only be licensed in a handful of states. This can become problematic if the property you're buying is in a state the broker is not licensed in. In this case, it may be easier to go with a direct lender.

Plus, brokers are subject to the guidelines of the lenders they work with, so it may not necessarily be easier to go with a broker over a direct lender. In fact, a direct lender may be a bit more flexible since they are the ones who set their own guidelines--they may be able to waive certain guidelines at their discretion in order to gain your business. A broker cannot do this without permission from the lender.

All lenders must charge certain fees and costs for processing the loan. But in order for a broker to make money, they have to charge more because they are the ones doing the work for you. This means you're paying the broker's fees on top of the lender's fees, so it may be more expensive to go with a broker. It's akin to having to make an improvement or repair on your home--it's going to be more expensive for you to hire a contractor than it would be for you to do it yourself because you’re not only paying for the materials, you’re paying for the labor.

I've included a link to the Quicken Loans website below and please feel free to contact me through my profile if you need more information.

Answer 2

A direct lender lends you the money directly. They can be large or small. A broker works with a number of lenders and brings lender and borrower together.

There are benefits both ways. Brokers may have knowledge of products not offered by all lenders. But a broker is another hand in the chain that needs to be greased (paid) somehow. If you're "credit challenged" a broker may be a better choice. If you have strong credit, you'll ususlly do better working with direct lenders directly since you won't be paying a broker's commissison.

Answer 3

You should check out The Mortgage Professor (http://www.mtgprofessor.com/) who's done a good job of describing the difference between a broker and a lender, and has a system of certiying those that will commit to their fees upfront to a potential customer.

The truth is that both lenders and brokers are trying to fit you to a loan package you'll accept that maximizes their profits. Brokers certainly are more abundant and less regulated than lenders. The lack of choice on products and lack of competition on fees are probably the two biggest drawbacks of a lender. The need for additional fees and potential lack of a need to keep a good reputation are the two biggest drawbacks of a broker. Both groups have their good and bad eggs. Best to get a referral from a trusted friend on a broker. Do your own research on lenders as well.

Don't be afraid to pit multiple brokers/lenders against each other to give you the best deal. Credit Agencies consider multiple credit report requests in a short timeframe to be one single request, in case you are worried about the impact of multiple credit reports being pulled. And always keep in mind that the Good Faith Estimate (GFE) is totally non-binding and does not need to match the final closing document. Be crystal clear on what fees will likely change and what fess will not with anyone that gives you a GFE, and always double check the terms and fees before signing at closing. Take it from me - you can walk away from a closing if something's not right!

Keep in mind that both will likely sell your loan after it's closed (nothing personal) so you will probably end up "working" with a different lender long-term. So focus on rate, terms, fees and reputation.

Answer 4

My advise would be to use the broker as a tool to get to the best lender. A broker deals with several lenders, and can provide you with the best deal offered from his list. Find out the lender the broker is using to refi or purchase, then contact that lender directly. Brokers are middlemen, and take a commission from the equity in the house up to a state maximum. By going directly to the lender you will avoid broker fees. Good luck.