Buying a home is one of the biggest and most stressful purchases you will ever make. There are so many moving parts in the purchase that everything has to come together flawlessly.
One of the major pieces in that purchase is financing. You’ll typically work with a direct lender or a mortgage broker to get your home loan.
Does that leave you wondering “What is a direct lender?” That’s a common question. Keep reading to find out what a direct lender is and how they compare to working with a mortgage broker.
What is a Direct Lender?
What is a direct lender? A direct lender is a bank or financial institution that will directly fund your home purchase. It’s like walking into your home bank and asking about getting a home loan.
A direct lender could also come in the form of an investor. Investors have been putting a lot of money into loans that banks have stayed away from. This could be an option if you’re trying to finance a home but have a hard time getting a traditional bank loan.
Direct lenders can also be found online. Some online lenders allow you to enter your information and you’ll be able to get your loan terms immediately.
Types of Direct Lender Loans
Direct lenders offer many different types of loans. They offer many different types of loans from auto loans, personal loans, and mortgage loans.
There are also direct lenders that offer short term loans, such as payday loans. These direct lender loans differ from other loans.
They’re short terms loans for smaller amounts. For example, a payday loan may be for $500 and needs to be paid in full in 2 weeks.
How Does a Direct Lender Differ from a Mortgage Broker?
When you’re buying a home, you’re going to need a much larger loan than a typical short-term loan. You can go to a bank directly to get a loan or you can use a mortgage broker.
Mortgage brokers do a lot of the heavy lifting for you. You want to make sure that you get the best rate possible for your home loan. If you want that from a direct lender, you’ll have to shop around for the loan yourself.
You’ll have to take the time and research different lenders and contact them for their rates. A mortgage broker does all of this work for you.
There has been a lot of movement in the mortgage industry as of late. While it seems that the industry has recovered since the 2008 housing crisis, the industry is still experiencing some instability. That’s mostly due to rising interest rates and a slowing buyer’s market.
Pros and Cons of Using a Direct Lender vs. a Mortgage Broker
It’s up to you to decide if you should use a mortgage broker or a direct lender. You’ll want to weigh the pros and cons of each before you make such a big decision.
Guidance throughout the Purchase Process
One thing that you’re likely to get from your mortgage broker is guidance in the process. There are things that you are likely to do before closing that could completely jeopardize the sale.
For example, taking out new credit cards so you can purchase appliances and furniture is a big no-no. That can scare a lender away.
Any changes, such as a new car or a new job before closing the sale can also cause a lender to rescind their offer, even after preapproval.
A lot of people don’t know this. A mortgage broker is more likely to walk you through the process than a direct lender and let you know of potential pitfalls.
Mortgage Brokers Shop Around for You
When you choose to use a direct lender, it’s your job to shop around for the best rate and the best lender. A mortgage broker has access to several different lenders, and they can do the shopping for you.
They can find the best terms on your behalf. They also know which lenders are easy to work with and which ones to avoid at all costs.
That saves you time and energy trying to find the right loan for you.
The Price of Convenience
If you choose to work with a mortgage broker over a direct lender, you have to keep in mind that they have to get paid somehow.
That usually comes in the form of a mortgage fee based on the amount you borrow. There are some shady brokers that will write other costs into the loan that you may not even be aware of.
You’ll want to know exactly what the mortgage broker charges and see a list of any additional fees for the loan and closing costs.
With direct lenders, what you see is what you get. They are typically transparent about their fees and won’t try to hide anything.
The Direct Lender Still Has Control
When you work with a mortgage broker, they really don’t have control over the process. They can use their experience to put you in the best position to get approved. Ultimately, it’s up to the bank to decide whether or not you’ll get the loan.
If you use a direct lender, you can communicate directly with them and make sure that their concerns and questions are addressed.
Choose the Right Lender and Get into Your Dream Home
The good thing about buying a home is that there is no shortage of mortgage lenders who want to help you finance your dream home. The biggest choice you have to make is whether you go with a direct lender or a mortgage broker.
What is a direct lender? A direct lender is the best way to streamline the financing process by taking out the middleman. That could mean much lower fees for you as you close your home purchase.
There are pros and cons to each option. It’s up to you to weigh what’s in your best interest and what will fit your needs.
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