Mortgage brokers collect information for several lenders, helping buyers compare conditions to find a favorable mortgage product. Lenders provide the funds to help you complete your home purchase. A lender is a financial institution that provides loans directly to you. A broker doesn't lend money. A broker can work with many lenders.
While they can provide services to people looking for mortgage loans, they are very different. A mortgage broker acts as an intermediary by helping consumers identify the best lender for their situation, while a direct lender is a bank or other financial institution that decides if you qualify for the loan and, if so, delivers the check to you. Unlike a mortgage broker who works independently, a loan officer typically works for a company. They are responsible for seeking customers for the bank or credit union and for developing relationships with these customers on behalf of the bank.
A mortgage broker acts as an intermediary between you and potential lenders. Unlike mortgage lenders, brokers don't finance loans themselves. Instead, they work on your behalf to find the mortgage from several lenders that best fits your needs. The decision to take out a mortgage with the help of a mortgage lender or mortgage broker is a crucial step in the homebuying process, and it's important to understand the differences between a lender and a broker when making the decision. The key difference between a mortgage broker and a lender is the work they do.
A lender lends you money, while a broker helps you find and work with a lender. Mortgage brokers are federally licensed companies or individuals that sell loan programs on behalf of lenders. A broker doesn't lend money. These companies help borrowers obtain loans through retail banks or mortgage banks and try to find the one that offers them the best rate and term.
Then, the lender decides whether or not to subscribe to the loan and under what conditions, not the broker. The advantage of using a broker is the ability to choose, as the broker will have plenty of lenders to contact you with. But once the counterpart is achieved, the broker is often out of the picture, so you may have difficulty keeping in touch with the person who underwrites and finances your loan. Let's dive deeper into the differences between lenders and mortgage brokers so you can determine the option that best fits your situation.
Mortgage brokers once had an uncertain reputation, so it's no surprise that many people are still hesitant to use them. When you have questions about the mortgage process or how to find the best mortgage options, it can be difficult to know who to ask. While this may seem less expensive in theory, your lender could include the broker's commission in the cost of your loan. By law, mortgage brokers cannot make customers choose certain lenders solely to increase their compensation.
If you pay the mortgage broker, they can't receive additional compensation from the lender; or you or the lender do. Mortgage brokers charge a commission for their services, which is a small percentage of the loan amount, usually between 1% and 2%.Mortgage brokers tend to be more localized, so the best place to start your search is to ask friends, family and your real estate agent for referrals. However, you may not need to do both: a broker's job is to compare mortgage lenders so you don't have to. Mortgage brokers can help you fill out your mortgage application and recommend the loan agent or lender that best suits your needs based on your income and credit profile.
Unlike traditional banks, mortgage bankers focus solely on mortgage lending without the distraction of other credit products or personal financial services. Investopedia's best overall choice for direct mortgage lenders is Quicken Loans, better known as Rocket Mortgage. The decision between a lender and a broker depends on your personal situation and your objectives in approaching the mortgage loan process. If you decide to work with a mortgage broker, it's important to know that you're working with an experienced professional.
If you want more control over the comparison between lenders and interest rates, you may not need to hire a mortgage broker.
