The changing face of home loans: mortgage broker or direct lender?

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When it came to financing a home, it used to be that about 70% of the loans were done through mortgage brokers, as opposed to banks directly.  Now, the tables have turned. Here’s why.

Mortgage brokers vs. mortgage bankers

First, let’s look at the difference between the two.

* Mortgage brokers are third-party companies who can work with multiple banks on the wholesale level whose loans they sell directly to consumers in the retail market. When you secure a loan through a broker, the broker receives a commission from the lender. Because they work with so many banks and therefore have multiple loan options, brokers can give you a lot of flexibility.

* Mortgage bankers are employees of one bank or financial institution. The loan choices they offer are restricted to those their bank offers.

What’s changed?

The recent mortgage meltdown and subsequent banking industry shake-up has changed the game.

Mortgage lenders would traditionally be more dependent upon brokers to sell their loans. But so many banks have disappeared in the past year or so. Or they merged with larger banks.

Financial institutions, especially big banks, can’t afford to extend their best rates and/or commissions to brokers. In such a competitive environment, why should they? Instead, they’re reserving those rates for their own customers.

The net result: Brokers have fewer loan products to offer clients today because there are fewer financial institutions offering loans. And many larger banks can’t afford to extend their rates and commissions to brokers.

For these reasons, most of my homebuyers are obtaining financing directly from banks these days. You may have to shop around a bit to find the loan and bank that best meets your needs. But a little time invested up front will pay you dividends, in terms of mortgage money saved every month, for years to come.

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