Shopping around for a loan can be a long, drawn out and energy-consuming process. Gathering all of your financial information together, making sure you have an acceptable credit score and finding the lowest rate and cost can be challenging to do without help.
Luckily, there are many different services available to assist you with getting a mortgage. Direct lenders, mortgage brokers and bankers are all experts in the industry and can help you throughout the entire mortgage process. However, each service functions a bit differently than the other, meaning your rates and closing costs could vary depending on the service provider you choose to work with.
Direct Mortgage Lenders
The main advantage of working with a direct lender is the familiarity that you’ll have with the lender who you’re working with. Once they become familiar with your financial situation, they’ll work with you one-on-one in order to figure out the best mortgage scenario possible. Direct lenders generally only offer mortgage-related services, making them more specialized than banks, who typically handle multiple services at a time. When working with an ethical direct mortgage lender they should provide you with a detailed analysis of their financing proposal, as well as what you should expect for the process between application and closing. Another main advantage of working with direct mortgage lenders is that they’re more flexible when working with those who have lower credit scores. Whereas banks are more rigid with their credit score requirements, direct lenders typically work with credit scores 20 to 40 points below what banks are willing to work with.
Brokers essentially work as the middleman or liaison between you (the borrower) and the direct lender or bank. Once you provide them with all of your financial documents, they will set out and shop different institutions in order to find the best mortgage terms for your situation. The main advantage of working with a mortgage broker is that they do the shopping for you. However, they do charge for these services and in many cases your closing costs will be higher with a mortgage broker than with a direct lender or a bank.
Working with a bank to handle your mortgage is similar to working with a direct lender except banks are more rigid with their guidelines and their mortgage terms. Although having your mortgage at the same place you do all of your banking can be a convenience. There is a common misconception that your bank will service your loan forever, but the truth is most mortgage loans are transferred to a new servicer 3 or 4 times throughout the life of the loan. Most people don't realize that mortgage loan officers at banks are not licensed, but loan officers who work for a direct lender or a mortgage broker are licensed. This generally means that loan officers at banks are less experienced and/or knowledgable than their counterparts at direct lenders or mortgage brokerages.