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Mortgage Broker vs. Direct Lender: Key Differences


As you shop for a mortgage, there are many different people and companies involved in the loan process. Two of these parties are the mortgage broker and the direct lender. When thinking about the process, don’t think of it as broker vs. lender. Instead, both are crucial to getting your loan to buy or refinance your home. Deciding on the specific kind of mortgage can be confusing. That’s why working with a financial advisor goes a long to ensuring your loan matches your needs, resources and timeline. 

What Is a Mortgage Broker?

A mortgage broker is an independent loan officer who works with many different lenders. Mortgage brokers take credit applications from prospective borrowers and matches them with lenders whose loan profiles you fit. By shopping your application around to multiple lenders, mortgage brokers can often find lower rates or better terms than if you worked with just one bank or mortgage lender. Not only that but mortgage brokers can save you a great deal of time.

In exchange for their services, mortgage brokers get paid fees from lenders, borrowers or both. Loan origination fees, for example, are typically paid to the broker by the lender. Ideally, the savings that brokers offer from shopping your mortgage around will more than offset the fees that they charge. However, you may need to be cautious that the mortgage broker isn’t steering you towards a loan that pays them more.

Once you’ve settled on a lender, the mortgage broker will apply for the loan on your behalf. The mortgage broker may assist the lender in their underwriting or act as an intermediary between you and the lender to gather all of the required documents and information. In general, the mortgage broker guides you through the loan process from start to finish.

What Is a Direct Lender?

Mortgage Broker vs. Lender: Key Differences

A lender is the bank or financing company that provides the loan for your home. Each lender has certain types of loans that they specialize in and usually have an ideal customer profile. They may focus on mortgages of a certain size, specific types of loans (e.g.: fixed vs. variable) or select programs (e.g.: FHA or conventional).

Most lenders allow applications to work with them directly instead of going through a mortgage broker. For example, you may apply for a loan through a bank that you have a relationship with, such as a checking account, credit card or investments. Depending on the lender, you may receive relationship pricing based on your overall balances with the bank or its affiliates.

However, if you aren’t familiar with the mortgage process, it may be more challenging without the help of a mortgage broker. While the lender has its own staff to answer your questions, it may not be possible to speak with the same representative each time that you call.

How Brokers and Lenders Differ

While both the mortgage broker and lender are important in the loan process, there are some key differences between the two. This chart below summarizes some of the most common differences.

Key Differences Between Mortgage Brokers and Direct Lenders

Mortgage BrokerDirect Lender
Types of loans offered?Works with many lenders to find best type of loan for youLimited number of types of loans
Who you interact withUsually with same broker and colleaguesMay be a different person with each interaction; may be all online
Fees chargedExtra fee on top of actual lender’s feeStandard mortgage fees
Relationship pricing?Not usuallyBased on your balances with lender

The table above is a generalized summary of the two types of financial professionals. Sometimes similarities emerge, depending on the type of property loan being sought and depending on which part of the country a potential borrower is in.

The Bottom Line

Mortgage Broker vs. Lender: Key Differences

If you’re in the market for a loan to buy or refinance your home, you may be comparing mortgage broker vs. lender for your loan options. A mortgage broker is not necessary to get a mortgage, but they often save time and (potentially) money by shopping your application to multiple lenders. Each lender is limited by the types of loans that they offer, so working with just one lender may not get you the best rate.

Tips on Mortgages

  • Financial advisors can help you navigate the sometimes-confusing process of getting a mortgage. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • When shopping for a mortgage, it is crucial to understand how much home you can afford. Your monthly payment is based on the value of your home, your loan amount, the interest rate, the loan term, and the type of mortgage. In most cases, property taxes and homeowners insurance premiums are also included in the monthly payment. Our mortgage calculator illustrates how much your payment will be based on these variables.
  • Use SmartAsset’s mortgage comparison tool to compare mortgage rates from top lenders and find the one that best suits your needs.

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