When it comes time to buy a home, there are very few people who can afford to pay for their house with cash. Instead, the vast majority of homeowners will get a loan for the purchase, and they will become one of millions who owe on a home mortgage. The biggest question for the potential buyer is through which institution they should apply for a loan. There are basically two categories; they could use a mortgage lender or a mortgage broker. Each one has its advantages and disadvantages.
A lender is one who sells their mortgage product. Banks, credit unions, and mortgage companies will all push their own loans. By doing so they keep all the money in their house, so all the interest and fees collected do not go out to another lender. By keeping everything inside, they are able to provide loans with lower closing costs than many brokers will be able, and since those who work for the bank are generally paid a salary, they can provide the mortgages without needing to pay commission to their agents. The lender represents the issuing company to the borrower.
A broker, on the other hand, will shop around from many different lenders in order to find the loan with the best interest rate for the borrower. Since they do not sell their own loans, the way the broker gets paid is through a commission. This means the closing costs are often higher when a person uses the services of a broker, and since there is one more party involved, there can be additional fees that are not seen when the borrower goes directly to the lender. A broker represents the borrower to the issuing companies.
There really is no better way to go when it comes to choosing a lender or a broker. The lender will keep the loan all in house and they will not add on as many fees during the closing process. But they will only be able to offer the current interest rate that is set for them. They have no room to budge on the interest, but will save the borrower money in the short term. A broker will set up the deal, have a few more up-front fees, but will be able to shop the top lenders in order to find the best rates possible. They can save the borrower money in the long run.
Deciding which service to use will vary depending on the your situation. The best way to go for anyone looking to get a loan is to price shop both a mortgage broker and a mortgage lender. Both must follow the same requirements, and legally follow all the same laws. In the end the borrower should find out who offers the best deal, and then go to the other one ready to negotiate.