Mortgage Broker vs. Mortgage Lender – What’s the Difference?
In short, a broker is a third party that has access to mortgage products from multiple lenders. The broker does not actually lend you the money. The lender is the financial institution that brings the funds to the closing table, and who you will pay your mortgage to each month.
Pros and Cons of Using a Mortgage Broker
- Middleman – negotiates with lenders on your behalf and handles all the paperwork. This can save a borrower significant time and hassle versus shopping around to multiple banks.
- Variety – has access to loan products and rates from multiple lenders. A broker may specialize in certain types of loans from a few lenders, or have access to a vast network of lenders to service any borrower.
- Flexibility – ability to find the best product for a borrower’s unique situation, and can mitigate potential issues before paperwork is sent to a lender,
- Limited – tighter regulations following the subprime mortgage crisis of 2008 has limited variety of products and rates. Realistically, a broker will not be able to find a significantly better rate for the same buyer from a different lender. There are also certain products that only borrowers can access from banks, and that are unavailable to brokers.
- Incentives – brokers are paid a commission for closing loans and they are required to disclose that amount upfront. Even with tighter regulations, there is often still an incentive to “make it work.” Savvy buyers should check with multiple brokers before committing to one.
Pros and Cons of Using a Mortgage Lender
- Control – you work directly with the institution that is loaning you the money.
- No Fees – you will always have closing costs, but working directly with a bank eliminates the broker commission.
- Availability – due to tighter regulations, there are some products, such as jumbo loans, that may only be available directly from the bank to the borrower.
- Discretion – a bank may weigh special circumstances in your favor, especially if you’re a long-time customer.
- No Middleman – you work with the bank directly, negotiating on your own and managing all the paperwork. While this may be seen as a pro to some people, the point below is why it makes the cons list.
- Time – it takes a lot of time and patience when you have to shop multiple banks to find the best product and rate.
- Limited – you are limited to the products, rates and borrowing decision of individual banks.
Why Consumers Are (Rightly) Wary Of The Mortgage Industry
It’s understandable that consumers are more conscientious than ever when it comes to obtaining a home loan. They want to know who they can trust to get them the best deal on a fair loan. The good news is that following the subprime mortgage crisis of 2008, the mortgage industry was forced to clean up their act in a big way.
The SAFE Mortgage Licensing Act of 2008 tightened regulations on mortgage brokers, while the Dodd-Frank Wall Street Reform and Consumer Protection Act addressed the causes of the crisis and enacted consumer protections to put an end to risky lending practices.
While it was a bumpy road to recovery, today we are once again enjoying a healthy real estate market with fair lending practices that protect borrowers and ensure they can get a dependable loan they can afford. When it comes to choosing between a mortgage broker or lender, the best piece of advice is to spend some time comparing your options to see who treats you the best while getting you the loan you need
If you’re looking to buy a home in Southwest Florida, the Link Team can help you start your search and connect you with upstanding local brokers and banks that are committed to keeping our real estate market strong and healthy. Contact us at (239) 357-5058 to learn more.