If you are in the market for a new home, one of your first steps is to review your financing options and get pre-approved for a loan. This used to be a simple matter of walking into your local bank or credit union and applying for a mortgage. Today, there is a wider range of home financing options, including direct lenders and mortgage brokers.
What is a Direct Mortgage Lender?
A direct mortgage lender is exactly what it sounds like - direct. Instead of going through a middle-man to find the right lender, and service your loan, a direct lender will do everything in-house. From examining your credit to handing over the final check, a direct lender is your one-stop-shop for everything involving home loans.
Mortgage Broker vs. Direct Lender
Mortgage brokers serve as middlemen for a variety of different lenders. They match you with the loan that they believe best fits your needs. Once approved, you deal directly with the service provider or loan originator. So, what does a direct lender mean? With a direct lender, you go directly to the source. The person taking your application actually has a role in making the final decision and, in many cases, can serve as an ongoing point of contact for your loan.
In most cases, a direct lender is licensed to provide mortgages in most, if not all, 50 states. Many mortgage brokerage companies are only licensed in few states, which can create issues if you are purchasing a property where the broker is not licensed.
A mortgage broker is bound by the guidelines set by the individual lender. The broker does not have the discretion to waive certain requirements in order to gain your business. A direct lender sets its own qualification guidelines, which means that it has the flexibility to waive them under certain circumstances.
Every lender charges certain fees for processing a mortgage loan; however, the fees charged by mortgage brokers tend to be higher than those charged by direct lenders. This is because the broker has to charge fees above and beyond those charged by the lender in order to make money. This is akin to purchasing an item retail versus wholesale. Some less scrupulous brokers do not disclose all of the fees upfront in an effort to secure your business while padding their profits.
Read up on unnecessary lender fees at WhatTheFees.com
With a direct lender, everything is typically processed in-house. This usually means a faster turnaround than with a broker who has little control over the processing of your loan and the disbursement of your funds.
There is a common misconception that mortgage brokers are able to offer better rates than direct lenders. In reality, all mortgage rates are driven by what occurs in the secondary market, which means that every lender bases interest rates on similar information. Any rate difference between a broker and a direct lender tends to be negligible at best and will likely have little effect on your monthly payment.
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While a mortgage broker may offer products from a wide array of different lenders, they may highlight the products that will garner them the best commission. With direct lenders, the loan officer typically does not receive a commission based on the rate or fees associated with your loan. This allows them to focus on securing the best loan option and rate for you.
At Wyndham Capital, we offer competitive rates on a wide array of loan programs. Our loan officers will take the time to understand your financial needs and goals in order to create a personalized loan solution. It is this commitment to exceptional customer service that has earned us the title of the "Nation's Most Referable Lender."
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