One of the most important, time-consuming tasks of the home buying process is getting approved for a home loan. It requires comparing interest rates, filling out lots of paperwork, and meeting tight deadlines. So, when you finally get approved and close on your house, it’s definitely cause for celebration! But what happens when you get a letter in the mail a few months later that says your broker sold your loan to a lender? Well, the good news is that usually nothing will change on your end. If you’re curious about why your loan got sold and what it might mean in the long run, take a look at what to know about a mortgage broker vs. lender when it comes to home loans.
First, it’s important to know that it’s common for one lender or broker to sell a loan to another lender or broker. It doesn’t mean there’s anything wrong with the loan or the homeowner. In most cases, it simply means the broker would rather focus on originating new loans than servicing existing home loans.
In other words, they’d prefer to stick to helping home buyers get approved for new loans. In fact, this is what brokers are good at — getting new loans issued for buyers. Then they eventually sell the servicing rights to those loans so they don’t have to deal with processing monthly mortgage payments for years.
So, what does the sale of your loan mean for you? In most cases, nothing will change. Your payment and interest rate will stay the same regardless of whether a mortgage broker vs. lender is servicing the loan. Depending on your situation, the most that will change is that you’ll need to send your monthly payments to the new lender. If this is the case, the lender will let you know the address or account number to send your mortgage payments to from now on.
If you got a home loan without fully realizing the differences between a mortgage broker vs. lender, you’re certainly not alone. After all, both can help buyers get access to home loans, which is the most important detail for anyone looking to buy their dream home! But there are some differences between a mortgage broker vs. lender to be aware of, especially if your loan was sold from a broker to a lender.
A broker is basically an intermediary between borrowers and lenders. When you go to them for help getting a home loan, they’re not lending out their own money like lenders are. Instead, they will help you compare multiple lenders so you can find one with the best interest rates and home loan terms. This can save you time and effort, as the broker will comparison shop home loans so you don’t have to do it yourself.
To help home buyers get the best home loan, a broker sits down with them to discuss their financial situation and mortgage needs. They usually collect documents to provide evidence of income, assets, debts, credit score, and other important information that’s required before you qualify for a loan.
Once they have these details, they can determine how much buyers can afford to borrow. Then they will look for lenders who will offer a loan with the best terms. This means they talk to several lenders about your loan options so you don’t have to do this step on your own.
So, what is a broker? It’s a professional who might be the most appealing choice if you’d rather work with one person to get a home loan. This is especially the case for borrowers who may have a hard time getting approved for a loan due to a foreclosure, bankruptcy, or bad credit score.
Note that this type of professional typically gets paid for their services via the loan origination fee, which is a percentage of the loan — around 1% in most cases. Knowing this, you can see why many brokers sell home loans to lenders at some point, as they mainly get paid for helping borrowers get new loans.
If your loan was sold to a lender, it’s helpful to know what this type of financial entity is. So, what is a lender? Unlike a broker, a lender actually funds your loan with their money. In most cases, a lender is a major bank or credit union, though some lenders are smaller, private companies or mortgage bankers who work exclusively with home loans.
For many people, the benefit of using a lender for a mortgage loan is the ability to borrow money from a bank or credit union that they already have a relationship with. Instead of asking a broker to help them shop around for a loan with the lowest interest rate, they’d prefer to either compare lenders themselves or work directly with a lender they already trust.
Unlike brokers, lenders are offering loans on their own money. But they get plenty of compensation in return, as lenders can make money on a wide range of fees charged to borrowers. These might include the loan origination fee, interest on the loan, late fees, processing fees, and other closing costs. As such, they make money long after the new loan is opened, which is why they’re usually happy to buy loans from brokers who don’t want to deal with loan processing.
If you have any questions about your current home loan, mortgage broker vs. lender differences, or other home-related issues, feel free to ask your real estate agent or mortgage advisor for clarification. But if your questions are related to home insurance, please contact LemonBrew today for the answers you need. We’re proud to offer insurance for homeowners, renters, landlords, condos, and more, so come to us to learn how we can help protect your home!