Mortgage Broker Vs. Lender: Which Is For You?
One of the most common misconceptions is that mortgage brokers and lenders are one and the same. The truth is, brokers and lenders both play unique roles in the home buying process.
We’ll go over the differences between mortgage brokers and mortgage lenders as well as give you a few tips you can use to make sure you’re working with the best lender for your needs.
What Is A Mortgage Broker?
A mortgage broker is the middleman between people who want to buy a home and lenders who can help them finance their purchase. A mortgage broker often works with more than one lender and understands where to get the best interest rates. Brokers have to operate under regulations and they need to get a brokerage license before they can open up shop.
Mortgage brokers help you decide which type of loan is best for your unique financial situation. Your broker can help you prepare the documents you need to apply for a loan, suggest where to apply and assist you in filing any necessary paperwork. You can think of a broker as a sort of loan matchmaking service. Your broker gets to know you and your needs and then they match you with lenders that can give you what you need.
In the past, banks and credit unions were responsible for advertising their own products. However, as the market became more competitive and flushed with choices, brokers have become more popular. Home buyers work with mortgage brokers when they need convenience. Tracking down interest rates, collecting preapprovals and comparing loan terms can take a lot of time and effort. Hiring a broker means that most of the heavy lifting is off your shoulders.
What Is A Mortgage Lender?
A mortgage lender is a bank, credit union or another lending service that gives out mortgages. Mortgage lenders issue mortgage loans, which you can use to buy a home. Like brokers, mortgage lenders also need licenses to practice. A lender may work with you directly to service your loan or they may give you a loan on behalf of a third-party service. While a lender won’t help you compare different lenders, they may be able to give you recommendations when it comes to loan type and term.
You must apply for a mortgage with a qualified lender if you want to buy a home. When you apply, the lender will ask you for a number of financial documents to prove you can afford to pay back the loan you want. Your lender might ask you for W-2s, bank statements and permission to view your credit report. If you’re self-employed, your lender might also ask you for your full tax return.
Every lender has their own lending standards regarding down payment, credit score and more, but not every lender offers every type of mortgage loan. Lenders earn money when you take out a loan and pay interest on the amount you borrow. The amount you pay toward your home loan each month automatically includes interest. You’ll need to compare lenders and interest rates on your own if you’re working with a lender.
Mortgage Broker Vs. Lender: What’s The Difference?
The difference that separates mortgage brokers and mortgage lenders is the ability to issue loans. A mortgage broker doesn’t issue mortgages. Instead, they help you compare lenders and decide which lender can give you the best deal on a loan. The mortgage lender is the one who issues your mortgage. It’s possible to get a loan without using a broker. It’s not possible to get a loan without working with a lender.
Benefits Of Working With A Mortgage Lender
Let’s take a look at some of the benefits of working with a mortgage lender.
- They offer loans for homeownership: A mortgage lender can give you a loan that you can use to buy a home with manageable monthly payments.
- They can help you decide which loan is right for you: Many mortgage lenders offer more than one type of loan. From FHA loans to conventional loans, a good lender will be able to recommend the loan that’s right for you.
- They organize closings: The process of closing on a home can be confusing. Your lender will manage things like state-required inspections, appraisals and title transfers on your behalf.
Questions To Ask Your Mortgage Lender
Choosing the right mortgage lender can make buying a home easier, less stressful and more affordable. Be sure to ask your lender these questions before you make a decision.
What Types Of Loans Do You Offer?
There are many different types of home loans you can choose from. Some of the most common types include:
- Conventional loans: Conventional loans are loans anyone can use to buy a home as long as they meet the lender’s standards.
- Jumbo loans: Jumbo loans are high-value mortgages larger than the conforming loan standards set by Fannie Mae and Freddie Mac.
- USDA loans: USDA loans are government-backed loans you can use to buy a home in a rural or suburban area with no down payment.
- VA loans: VA loans are government-backed loans that can allow qualifying service members and veterans to buy a home with no down payment.
- FHA loans: FHA loans are government-backed loans that allow you to buy a home with looser credit score requirements.
Not every lender offers every type of loan. Ask your lender which loans they offer before you get a preapproval so you’ll be able to get the right one for you.
What Is Your Minimum Down Payment For Each Loan?
Many people believe they need to have at least a 20% down payment if they want to buy a home. It’s actually possible to get a conventional loan with as little as 3% down. Though having a full 20% will help you save on mortgage insurance, this exact amount isn’t a requirement to get a mortgage. Some loan options, like VA loans and USDA loans, have no down payment requirement at all.
A full 20% down payment isn’t feasible for everyone. Every lender can set their own standards for down payment requirements. Because these standards can vary, it’s important to know what options your lender can offer. The best lenders will walk you through each loan option you’re interested in and explain their down payment requirements for each.
Do You Offer Rate Locks?
A rate lock is a guarantee that your interest rate won’t change from when you apply for a loan and when you close on your mortgage. If interest rates happen to go up while you’re waiting for a loan approval, a rate lock will allow you to keep your original rate. However, if interest rates go down, you won’t get to take advantage of lower rates.
Lock your rate down to keep your loan predictable. The best lenders will tell you whether market rates are high or low. This can help you decide when to lock your rate down. You’ll also want to look for a lender who doesn’t charge fees for locking in your rate.
What Are Your Credit Score Requirements?
Your credit score affects your ability to get a mortgage, your choice of lender and your interest rate. Some lenders specialize in loans with higher interest to borrowers with low scores. Other lenders have strict credit borrowing standards and only offer loans to applicants with great scores. Most lenders fall somewhere in the middle and offer lower interest rates to applicants with higher scores.
Like down payment requirements, credit score standards can vary by lender. Ask your lender what the minimum required credit score is for each type of loan they offer. The best lenders will be able to tell you more about the best loan options for you based on your current credit score.
The terms “mortgage broker” and “mortgage lender” aren’t interchangeable. A mortgage broker is someone who helps you find the best lender for you. Mortgage brokers don’t actually service loans or help you fund a home purchase. Instead, they compare lenders and assist you in completing any paperwork you need in order to apply for the loan. Most brokers work with a number of different lenders. Home buyers who hire brokers usually don’t have time to compare loan options on their own.
A mortgage lender is who actually funds your loan. A lender might give you a loan directly or they might fund your loan through a third party. Not every lender offers every type of loan or works with everyone who applies for a loan. Lenders earn money when you repay your mortgage loan with interest.
There are plenty of mortgage lenders you can choose from, so it’s important to find one that offers the type of loan you need. Ask about available loan options, preferred down payments and credit score requirements because standards can vary widely by lender. Finally, ask your lender if they allow you to lock in your interest rate for free when you apply for a loan.
In This Article
How To Get A Mortgage Preapproval
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