So, you’ve decided to invest in an ideal home for future chapters of your lives as a household. First off, congratulations, as this is a big step to take! Second, you might be wondering whether to head straight to your bank (a direct lender) or skirt around them and open discussions with a dedicated mortgage broker. Which should you choose?
The answer varies depending on a myriad of factors, but there isn’t necessarily a “wrong” one. Today, let’s explore the ages-old mortgage broker versus direct lender argument in more detail. By getting to know each role in more detail, perhaps we can help you determine which is not simply the right or wrong choice, but rather the ideal one for your needs and use case.
How They Work
Your bank of choice is a direct lender, and there are alternative options available including credit unions and other similar operations. With any direct lender, as the term implies, you’ll be working directly with them on your mortgage through a preapproval and application. It’s all sent to and processed in one place, generally making for a time-efficient and streamlined experience. A direct lender is where the borrower’s mortgage application is directly dealt with.
How They’re Compensated
Lenders, naturally, receive income from you as the client. This can be the case in a variety of ways including standard banking fees, special services and, of course, interest on mortgage payments made directly to them.
It should be noted that bank employees aren’t as invested in what you’re doing – literally. They make a standard rate that doesn’t change one way or the other, so their job security doesn’t depend on your signing up for a mortgage. Should you complete your application with accuracy and not trigger any hiccups along the way, however, the preapproval and securing of mortgage funds can be relatively quick and straightforward through them.
What to Avoid
If there are errors – even typos of a single digit – then there’s a risk of having to restart the entire application process, which can be exhausting. This may also mean that you could miss out on a property that closes before you secure the mortgage you need. While bundling services through a bank directly can evoke a sense of loyalty and potentially ideal and in-depth treatment, the fact of the matter remains that you are but one of many clients. Specialized service is less likely, and you almost certainly won’t receive personalized assistance with your finances, such as with gathering documents or otherwise. You may also need to jump through extra hoops that you weren’t anticipating in terms of getting approved, as direct lenders can sometimes be meticulous in scrutinizing your financial and employment situation, among other factors.
How They Work
Mortgage brokers work a little differently. Some think of them as “middle-man” positions and perceive them to be more on the lender’s side, protecting those essential relationships, but that’s not exactly the case! In fact, they represent the client, putting their needs before those of others. Where the relationships with lenders come in is in the broker’s knowledge of rates, specific terms and conditions, and all other fine print elements. In other words, nothing gets by them so, naturally, nothing will be overlooked.
How They’re Compensated
The good news when choosing a mortgage broker is that, since they’re usually compensated by the lenders whom they have relationships with, you won’t be on the hook for any additional fees by hiring them. This makes them a stress-free option if you’re already stretching to cover that minimum 20-percent down payment to avoid mortgage insurance.
Since mortgage brokers have a deep and profound understanding of the inner workings of their lenders, they’ll know which are the best options for you as a future homeowner. Namely, their recommendations will factor in how each specific lender examines income and debts – not to mention how the odds will be stacked either against you or in your favour as a result. They’ll provide invaluable insights into not only where you’ll get the best rates and terms but whether special financial incentives are available to you. If you’re a senior or a newly landed immigrant, for instance, there may be other potential solutions on the table worth considering that the broker will happily walk you through.
What to Avoid
Your best bet is to choose an experienced broker with a deep understanding of the current housing market, the latest tweaks to lender terms and conditions, and other important details. You should try not to choose one with limited lender access, as they may not have a connection with the one you prefer most. If they work remotely, they may also not offer an in-person meeting or local office for you to visit.
To close and reiterate, there is no “wrong” answer, but doing your homework before submitting that application is of crucial importance. Protect your finances, your prospects and, yes, your future homeowning opportunities by making the right call for your needs. Since reaching out to lenders and brokers is free, we recommend testing the waters to see what works for you!