The first step in buying a home is to talk to a mortgage professional about your income to debt ratio and credit history to determine your loan options. It is very important to work closely with a lender to determine a comfortable monthly payment and down payment for you. This will ultimately determine the price range for your home search.
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What is a direct lender vs mortgage broker?
A mortgage broker is a middleman who may represent the mortgage loan products of many lenders. The broker's goal is to match you with the loan product that best meets your needs at the best price. Once your loan is approved, you will usually deal directly with the loan originator or their mortgage service provider.
There was a time when most homebuyers obtained their mortgage loans through their banks or credit unions. Today, however, there are a number of additional home-financing providers. Which one is right for you? Let’s take a look at the options.
Banks, mortgage banks and nonbank lenders all are direct lenders; that is, employees review your application and make the decision to lend you money. Typically, the institution will sell your loan on the secondary market.
Benefits of a direct lender:
- Reliability: You probably know and trust the institution. It is regulated by state and federal agencies and likely has strong ties with your community.
- One-stop shopping: You deal directly with the source of your loan.
- Savings: As the loan originator, an institution may save you money in the loan process.
- Speed: A direct lender also may process your loan faster than other providers.
Risks of a direct lender:
- Limited choice: Lenders offer only their own programs. To comparison shop, you will need to speak with several lenders.
A mortgage broker is a middleman who may represent the mortgage loan products of many lenders. The broker’s goal is to match you with the loan product that best meets your needs at the best price. Once your loan is approved, you will usually deal directly with the loan originator or their mortgage service provider.
Benefits of a mortgage broker:
- Variety: By shopping across a range of different programs and lenders, a mortgage broker may find you a better fit than a direct lender could.
- Qualifying: A mortgage broker can best steer you to the national or regional lenders that are most likely to accept your application based on your financial and personal information.
- Savings: You may get a more favorable loan rate.
- Speed: A broker saves you time shopping for a loan.
Risks of a mortgage broker:
- Hidden costs: Some mortgage brokers attempt to increase their profit by writing hidden costs into your loan. Best hedge: Know the loan process and ask questions.