Why Choose a Mortgage Broker?
When it comes to deciding which home loan provider that best suites your needs, it’s very important to understand the various sources from which to choose to help with your home financing needs. They are:
- Traditional bank
- Retail or Direct Lender
- Mortgage Broker
A traditional bank typically will have most of the home loan products that are available, but often with their own restrictions, which are called overlays. An example would be an FHA loan that can go to a 580 credit score with a 3.5% down payment minimum (according to HUD guideline). Many banks will only allow a 620 minimum score for this scenario. This can leave the consumer without any viable lending options in some instances.
Further, banks have centralized underwriting and processing centers. The consumer becomes one of many at the expense of efficiency. This can be a problem in a purchase transaction where “time is of the essence.”
Direct lenders typically claim to lend their “own money.” While this sounds like a trustworthy reason to utilize this lending channel, it’s simply not accurate. Direct lenders typically retain large credit lines from money-center banks (the big box banks) They underwrite the loan and then borrow from their lines of credit in order to fund the loans that they underwrite. Once the loan is consummated, they sell it to an investor and pay back the creditor—retaining some of the proceeds as their profit.
This model works, but it is a very high overhead business which requires significant markups on their product in order to stay in business. This typically will mean a higher loan rates and fees relative to mortgage brokers. This is the main disadvantage to the consumer when using a direct lender.
Finally, enter the mortgage broker. I personally consider this the “top of the food chain” in home lending. This the considered the “wholesale” lending model and typically will provide the consumer with the best possible combination of pricing and service. We’re very often local to the borrower and most shops maintain minimum overhead with very few employees. The loan officers are usually contractors and not on a regular payroll. This keeps overhead low and the savings is passed on to the consumer.
Unlike the other two models above, mortgage brokers will often have relationships with dozens of lenders within the wholesale lending arena. Instead of having just one list of products, like a bank or direct lender, we have many from all our various sources and can find the best “fit” for a borrower’s unique financial needs and situation along with awesome pricing on loans. That’s quite a combination.
Best pricing, a strong local presence along with personal service makes the broker channel the best option in my opinion. I’ve worked in all 3 examples and find that brokers have the best of everything to offer their clients. This is why I’m here and why I’m staying here.
Sincerely
Scott Lawson