You’ve got your eye on a gorgeous three-bedroom condo on the edge of the city. It’s perfect from the bay window in the living room to the lotus chandelier in the kitchen. All you need now is to figure out how much you can possibly offer for this seemingly priceless piece of paradise.
It’s time to address the dreaded subject of loans. Applying for a home loan is particularly cumbersome, even compared to auto loans. Where do you begin? Who do you even talk to? What do you need to take out a loan?
A Risky Proposition
Ever since the 2008 financial crisis, mortgage brokers have been regarded with some suspicion. They are largely held at fault for encouraging too many unsuspecting home buyers to accept high-risk mortgages. After all, these brokers had no vested interest in seeing the loan work out for lender and borrower alike. They just wanted to cash in and move on to the next home buyer.
That being said, the game has changed substantially since 2008 and mortgage brokers are a legitimately, and often preferable, way to tackle the home loan process. We’re going to walk you through the pros and cons of both mortgage brokers and direct lenders to help you decide on the best strategy for landing that coveted condo.
Let’s start with the most straight-forward method for acquiring a loan. “Direct lender” typically refers to banks, mortgage banks, and non-bank financial institutions (NBFI). Basically, a direct lender is any organization that is in possession of the funds and loaning them out to you.
When you work directly with a bank or similar direct lender, you will be able to communicate with them, well, directly. They’ll be able to answer all of your questions about applying for a loan and your personal loan document. This can make certain parts of the process go more quickly.
When you apply to one direct lender, you get one rate. If you want to “shop around,” you need to look to multiple lenders, which means multiple applications and a lot of time.
Mortgage brokers are distinct from direct lenders in that they don’t actually loan you any money. They are the middle men in the home mortgage business. Their job is to hook you up with the best possible rate by fielding a variety of direct lenders and guide you through applying for a loan. They’ll even help you understand what you need to get a loan.
If you’re looking for the best possible rate, a mortgage broker will help save you time. They’ll do the leg work and report back to you with the best they can offer. Mortgage brokers also have a financial interest in closing on a loan, so they’ll often be there nights and weekends in a pinch if you need to get paperwork together fast.
Having a financial interest in getting you a loan is a both a pro and a con. After all, if you don’t have many viable loan options, a mortgage broker may be more inclined to encourage you to take a high-risk loan. However, this is happening less and less with increased oversight and regulations since the 2008 financial crisis.
Why Not Both?
At the end of the day, nobody can force you to take a loan you don’t want. Plus, you can apply for loans with direct lenders and mortgage brokers at the same time as you shop for the best rate. Given the enormous time saving benefits associated with mortgage brokers, consider exploring one and see what they can find you. Soon you'll be kicking back in that condo and thinking up new ways to save money.