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The Difference Between Direct Lenders and Mortgage Brokers

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by: No more debt !
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Date: Sun, 14 Dec 2014 Time: 10:05 PM

When applying for a mortgage through any one of America's many lending companies, it can be hard to know whether a mortgage broker or a direct lender is ideal for your specific set of circumstances. Ultimately, the decision on which financial professional you'll work with is entirely yours, yet — in order to make the right call — knowing the actual differences between the two can be of great worth. While both positions have plenty in common, they're different in a few fundamental ways.

As far as similarities are concerned, brokers and lenders do their part to attract potential clients through personal advertising campaigns or individual companies. Both also work to better understand your financial stability as a means of determining whether you're a viable candidate for borrowed money. Additionally, the two are well-versed in the general mortgage process and can clarify any legal disclosures to you.

For starters, the number of lending sources made available to both groups is different. As stated by, "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." Though a broker's web of connectedness might initially seem appealing, one of the major drawback is time efficiency. Dealing with a liaison sometimes means that the closing of a loan might take longer, due to the fact that multiple parties are involved.

Secondly, licensing comes into play as a mainstay of differentiation between direct lenders and mortgage brokers. Direct lenders are typically licensed by their respective companies to formally administer loans in all 50 U.S. states, whereas brokers may only be certified to work with borrowers in a select few states. Needless to say, if you're looking to purchase real estate or a home in a state outside of a broker's stewardship, it'd be better to work through a direct lender.

Lastly, monthly mortgage rates can change, depending on whether you've sought out the help of a direct lender or mortgage broker. Many people falsely believe that mortgage brokers can always offer lower monthly rates than direct lenders or larger mortgage companies. The truth of the matter is that all mortgage rates are indirectly linked to what happens in America's secondary market. The short of it? All lenders get their rates from the same place. 

However, that being said, the difference between the monthly rate that a broker can offer you will always be significant, ranging anywhere from a quarter to a half of a percentage point better. The reason is found in a wholesale broker's loan obtainment process. A broker will always have access to lower monthly rates because he is solely responsible for the entirety of the loan, whereas a direct lender will have a team of two or three people working with him who also must be paid for their services.

As you can see, the differences between what a direct lender and mortgage broker can offer in the ways of borrowed money are as numerous as the mortgage companies who employ them. Fiscally speaking, there's no perfect answer for all financial situations. It's best to analyze your current economic standing and contract accordingly the required and necessary talent which will best help you succeed in the competitive mortgage market.

About the Author


About the Author

Lucas Miller is a finance writer. Information provided by Castle & Cooke Mortgage. He writes for Fusion 360, an advertising agency in Utah. Find him on Google+.

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