Are you looking to take out a mortgage?
If yes, you’re about to make a sound decision. At a time when median home prices in the United States are hovering above $200,000, getting a home loan is the only way for most people to afford a home. And even if you had the money to snap up a home in cash, taking out a loan is still a savvy move.
Once you step in the lending marketing, you’ll quickly encounter two words: mortgage broker and mortgage lender.
How are they different?
Continue reading this mortgage lender vs mortgage broker guide to learn more.
What’s a Mortgage Lender?
You probably don’t need any deep explanation to know who a mortgage lender is.
You’re borrowing money to buy a home. In the industry, such a loan is called a mortgage. Thus, a mortgage lender is a company that will lend you the amount of money you need to afford a home.
There are different types of mortgage lenders:
- Commercial banks
- Credit unions
- Specialized mortgage companies (Hard money lenders)
Most people take out mortgages from commercial banks. As long as you meet a commercial bank’s credit and income requirements, there’s always a good chance it will approve your mortgage application.
As a borrower, it’s your job to do sufficient market research and find an ideal commercial bank for your mortgage needs. This is because different banks offer different kinds of mortgage products. One major factor to keep your eyes on is the mortgage interest rate.
Credit unions operate like commercial banks and often have the lowest mortgage interest. However, they don’t lend money to just about anyone.
You can’t just walk into a credit union and make a mortgage application. You have to sign up as a member and build a savings history for about six months before you can qualify for the union’s credit services.
Specialized mortgage companies are private companies that aren’t formally recognized as financial institutions. They offer mortgages to anyone who meets their qualification requirements, but their rates are typically the highest.
How to Choose a Mortgage Lender That Suits Your Needs
In the U.S., there are thousands of mortgage companies. They all aren’t created equal.
When you’re in the market for a mortgage, it’s super important to focus on finding an ideal lender. How do you do this?
Here’s how to find the best mortgage lender:
Know Your Mortgage Needs
What type of mortgage do you need? How much money do you need to borrow?
When you have answers to these questions, you’ll have a good handle on your mortgage needs.
They type of mortgage you need will have a big influence on the lender you choose. If you qualify for a government-sponsored loan, such as an FHA or VA loan, you need to find a lender that offers these types of mortgages.
Even when you need a conventional mortgage, you still need to find the right conventional mortgage lender. Just because your local bank offers mortgages doesn’t necessarily mean it’s the right lender for you.
Also, some lenders are known to offer small mortgages ($200,000 and below) and others have no limit. If you need a small mortgage, you need to find a company that specializes in offering small mortgages. If you need a big mortgage, you don’t want to waste your time applying to a lender that only offers small mortgages.
Your Credit History
Lenders will typically assess your credit history before making a decision on your mortgage.
For a conventional loan, you need a credit score of at least 620. However, it’s not impossible to get a mortgage if your credit is bad. You just need to find a mortgage lender that offers loans to people with bad credit.
There are other factors to consider when choosing a lender, but these are the main ones.
As you can see, finding the right lender for your needs can be a big challenge, especially if you’re a newbie.
This is where mortgage brokers come in:
What’s a Mortgage Broker?
This is an individual or company that helps mortgage borrowers like you find the best mortgage loan.
A mortgage broker doesn’t lend any money to borrowers. Their job is to connect borrowers with mortgage lenders. They’re the middleman.
Mortgage brokers are not agents of a lender. In fact, they don’t have any affiliation with any mortgage lender. However, these brokers will get paid a commission when they refer a borrower to a lender. This is known as the finder’s fee.
How to Find the Best Mortgage Broker
There are thousands of mortgage brokers and they all differ in terms of service delivery.
If you’ve resolved that you’re hiring a mortgage broker, it’s best to focus on finding the best professional.
To do this, you can start by getting recommendations from friends and family. Because most homeowners have a mortgage, there’s a good chance someone in your close circles has used the services of a mortgage broker.
You can also conduct an online search and find top-rated mortgage brokers in your area.
Once you’ve found a mortgage broker, they’ll assess your needs and financial situation, and get down to the job of finding you the right mortgage.
Mortgage Lender vs Mortgage Broker: Know Who You Need
Inevitably, you’ll come across mortgage lenders and mortgage brokers when you’re hunting for a mortgage. With this mortgage lender vs mortgage broker guide, you now know the specific roles each of these institutions play in the mortgage industry.
Keep reading our blog for more tips and insights.