When you set out to buy a house, you probably didn’t expect to feel like you needed to study up on all the vocabulary words that come along with the home buying process. This is often the reality of homeownership today, though: a barrage of terms and titles that you might be having a hard time following. One of the biggest and most prominent examples of this is when discussing a mortgage broker vs. lender. Are these two different things? If so, what’s the difference between the two?
Fear not: The short answer is yes, a mortgage broker and a lender are two different things. The long answer — which will elaborate on what makes a broker and a lender distinct — will take a little bit more explaining. Thankfully, it’s nothing complex. Read on, and you’ll be able to tell the difference between a broker and a lender in no time.
Simply put, a broker is a professional in the financial industry who knows how to bring together borrowers and lenders with ease. Depending on the borrower’s specific needs and the lender’s particular advantages, mortgage brokers are tasked with looking at both parties and finding the pairs that match the best. Because mortgage brokers are not lenders, they aren’t going to use their own money to help advance any of the prospective homeowner’s mortgage loans. They simply exist to act as a helpful, handy middleman who shows home buyers a plethora of quotes and figures from all kinds of different lenders to help them find the best one for them.
You might be thinking: What’s the point of going through a broker if they have nothing of financial value to offer you for your home purchase? Well, mortgage brokers have value for the way they help you find the right lender. Their job is to know which lenders offer the best mortgage rates and benefits and help you understand which lenders work best for specific types of homes, such as cooperative homes, condominiums, or townhouses. Beyond this, brokers can also help you get approved after a recent bankruptcy, a bout of bad credit, or a period of temporary unemployment.
In easy terms, a lender is a bank or financial institution that provides funding for your mortgage in the form of a loan. These can range from commercial banks to private companies to any institution that has the proper funds and trustworthy accreditation to provide you with the proper funds and reasonable repayment terms you need to fully embrace homeownership. While home buyers are free to choose whatever lender they please, most borrowers tend to stick with the financial institution they already have a preexisting relationship with — such as the place you bank at or have gotten a loan from before.
Lenders eliminate the middleman by allowing borrowers to communicate directly with them, making the process of obtaining a loan much faster than compared to a broker. However, removing the broker like this can bring on its own unique set of problems. You may have to shop around a bit to find the right lender for you, and even then, it’s possible that you could even bring down your once-solid credit score by running so many credit checks in the process of trying to find a lender.
As you can see, mortgage brokers and mortgage lenders have two different jobs despite sounding somewhat similar in name. The former assists you with finding the right lender, and the latter helps you secure the funds for your mortgage. Beyond this, there’s also a difference in how brokers and lenders are paid: Brokers typically receive a fee from the bank, while lenders derive their fee from several different places as you pay them back. In both instances, the brunt of their pay comes from the loan’s origination fee, but lenders tend to get more simply because of the principal interest, additional charges, and any late fees or penalties that you might be charged over the repayment period of your loan.
Apart from this, the only other major similarity between the two is that the process of applying for a mortgage remains the exact same when all is said and done: You must first provide the necessary documentation, then fill out your application for the mortgage, and finally, wait to be approved for it. Whether you used a broker or a lender to find the property, you’re going to have to complete this application the same way regardless.
All in all, you are in no way required to pick a broker over a lender or vice versa. As a matter of fact, some future home buyers opt to speak with both a broker and a lender to compare and contrast their options and weigh their rates. Both have their own unique positives and negatives, just as you have your own unique financial situation — that’s why it’s important to consider your choices before you settle on one or the other. At the end of the day, both hope to see you find your dream home, so you can’t really go wrong either way.
At LemonBrew, we know that the home buying process can be an overwhelming and complicated one. But thanks to the expert knowledge of our licensed loan advisors and the many technological advancements that make the modern-day real estate process easier than ever, we’re here to help simplify those complications. If you’re in search of the best mortgage for you, check out our mortgage division full of licensed loan advisors who are here to help you get pre-approved and close in a breeze. Our expert advisors would be happy to help you learn more about the lending process and teach you how to make the right decisions so you can achieve your homeownership goals, talk to one today!