Why not use a bank or a direct lender when looking for a mortgage? If shopping for a loan was cut and dry, it wouldn’t matter whether you dealt with a broker or a direct lender. With so many loan programs and requirements, the lender can make all the difference. Since most people’s homes are their largest investment, making a well-thought-out loan decision is critical.
The main difference between a broker and a lender is that a broker can offer loan programs from a variety of different sources. This means that a broker is better able to find a loan program for a borrower with unique needs. For example, many direct lenders don’t offer loan programs to borrowers with low credit scores, borrowers who cannot prove their income, borrowers who only have a small down payment, borrowers looking to purchase a property for investment, borrowers who have a high amount of existing debt, borrowers who live abroad, and the list continues.
There are lenders for all the scenarios listed above, and brokers usually know who they are or can find them when they are needed. A direct lender or a bank can only sell you the products that they have. If they don’t have the product that may best serve your needs, it is unlikely that you will even hear about it. Without a broker, borrowers wouldn’t be educated about the wide array of products available or advised about the benefits and pitfalls of each product. Most borrowers would save a lot of time and effort by using a reputable broker rather than going from lender to lender trying to figure out what will work best for his or her situation.
The borrower who falls into the generic market niches that most lenders offer can go to any lender, but their decision should be based on whether they want to spend the time to shop the market themselves or if they would rather have a broker shop the market for them. Many banks lead consumers to believe that using the services of a broker will cost the borrower more money. However, brokers work through the wholesale lending channels often making brokers less expensive. Since the brokers do the soliciting, counseling, and processing for each loan, the lender’s work is reduced substantially. Because of this savings of time and personnel, the lender offers the brokers a discounted rate. That is why brokers can compete with the banks on most products.
If the borrower decides to shop the market on their own, they need to be aware of the many pitfalls that can trap the inexperienced borrower in the market. Here are a few:
Brokers are experts at packaging the loan and are well-positioned to find the best loan for the borrower’s needs. Since successful brokers generally build their business through repeat and referral business, doing what’s best for the client also serves the broker. Because brokers are not employees of the lender, their sole purpose is to be your advocate.
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