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Profile picture for Optimus012

Direct lender vs Mortgage broker

I've been encountering several bank owned homes that require Wells Fargo, Bank of America, etc cross approval. My agent says I should get pre-approvals from these banks to make my offers stronger. I already was preapproved with a mortgage broker, not a direct lender.

Is there any advantage with going through a mortgage broker vs a direct lender? My agent says if I go to a direct lender, my costs for the loan would be cheaper. Also, a direct lender approval is stronger. Not that I care, I just hate to go through the whole preapproval process again. She's recommending doing it 3 times with B of A, Chase, and Wells Fargo. Opinions?
  • May 13 2012 - US
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Answers (17)

Profile picture for CA Direct Lending
"every place will have the same rates"

Not a chance.  I think the highest-rate lender with the lowest rates no matter where or for whom they work is the best place to get a loan. 
  • April 09
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Profile picture for singlewingmatty
I have been through the buying and selling process way too many times since 1985, so what I am going to tell you is the truth! I have closed on a home 18 times between 1985-2013. Yes, I had to move alot...Go with your local bank or small town credit union, trust me, this is the best way to go. They will deal with Fanny Mae when necessary but your closing will be secured so that you won't have any issues with the deed paperwork AND you won't get some letter in the mail after you closed saying that they turned over your mortgage to another lender. I went through a mortgage broker once and discovered within 3 months of closing that my mortgage ended up at Bank of America with a higher monthly mortgage than expected because their process to hold property taxes caused me a higher monthly fee, but the escrow was like 6 months advanced worth, oh I was so upset, it was infuriating and if you try to get it corrected, the company is so huge that no one seemed to know who I should talk to about it. My phone calls were always put on hold for long periods of time, then transfer to another employee and then another department and again and again over and over....NEVER go with the big banks, you will be nothing to them but just another number. Definitely go with your small community bank. Interest rates are regulated by the Feds, so every place will have the same rates, but it's the added on fees, the customer service and other factors you need to watch out for. Your small town bank is your best place, PERIOD
  • April 09
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Profile picture for CA Direct Lending
I recommend choosing a lender, no matter how they're classified, by whether they're able to get your purchase closed on time  and with a very competitive rate. 

You can find that lender here on Zillow; banks, big banks, brokers, whoever.  http://www.zillow.com/mortgage-rates

Here you'll be able to enter your scenario anonymously, find the best rates offered anywhere, see lender ratings and read reviews from past clients. 
  • April 06
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Banks will argue they are best, brokers will argue they are best, and direct lenders will argue they are best...

In some situation, each one of these entities is correct...

But my general advice is simply this: Choose a good Loan Officer!

10% of the success of your mortgage loan is the company you choose, 90% of the success is the Loan Officer you chose. A good Loan Officer is licensed, experienced, and will take the time to understand you, and your situation.  Your wants, needs, and goals, including your loan term and short term payment and equity objectives, and have knowledge and access to all the major loan programs.

Unfortunately, way too many Loan Officers are more of the low level application clerk type versus the high level professional type. The vast majority of Bank and Credit Union Loan offers are off to the wrong start, simply because they are not even licensed.  All Loan officers must be registered. An NMLS number looks like a license number, but it is not.

This is the largest financial transaction of your life.Forget where they work. Choose a good Loan Officer.  Google their name.  What do you find?  Nothing?  A small listing on the corporate site?  Negative/positive reviews?

Full disclosure, I am a licensed Loan Officer at a [Removed by Zillow. Please see our Good Neighbor Policy for posting guidelines]
  • April 06
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Profile picture for user5885896
"Direct Lender" does NOT necessarily mean a bank. Direct Lenders are companies who do their own in-house underwriting. The advantages are numerous, including - but not limited to - much quicker closing and more control of all aspects of the process, especially if they are local. So, the best choice is a Local Direct Lender. Big banks are to be avoided like a plague!

 And, to the person at the beginning who declared that shopping several lenders for best rates is "unethical", I hear stupid things all the time, but this one definitely tops them all!
  • January 19
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Even though this question is over 2 years old, I feel the need to address some of the comments.
I still content that both Direct Lenders & Brokers have advantages.

Here are a couple truths (not opinion) that were contested:
    
1. Direct Lenders exist. Any lender that funds it own loans is direct. More so,many have portfolio products     that they do not sell to Freddie of Fannie and have guidleines that are not set by Freddie or Fannie.             Whatever they choose to do in the secondary market does not change this.
2. Guidelines are not the same. Every Lender build on to Freddie & Fannies Guidelines as they see fit.             Some more than others.
3. Rates and Service are different with every Lender regardless of being a Broker or Direct Lender.                  Sometimes you are faced with choosing one or the other with either Brokers or Direct Lenders. Ideally         you get both.
4. Direct Lenders have just as many products as Brokers. Where do you suppose Brokers get their                 products if they don't fund their own loans? Banks (Direct Lenders) They usually offer more products directly in their retail than they do through their broker channels. However, Brokers have access to niche products not every Direct Lender may offer. Most people will not need a niche product. Thus most will benefit from both equally.

All The Best!



  • June 06 2014
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Profile picture for Michael Marroquin
While there are many differences, I would say the main difference is the ability to underwrite a file upfront and have it approved subject to appraisal.  In my opinion, have 3 banks give you a pre-qual is not only redundant, but unethical.  This wastes the time of the mortgage lender you are not going to use.  If you need a direct lender "pre-approval" for your offer that is underwritten upfront with a DU approval subject to appraisal and verification's, that is one thing.  If you then want to shop around for better terms with another lender or broker, and compare for a better deal that is another.  However recommending you submit your file to several banks at once is an ethical grey area and at quite unprofessional in my opinion.
  • June 06 2014
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Optimus it is actually just the opposite.  Brokers have the ability to cover all costs and deliver the lowest rates because they are getting them on the wholesale level.  Some realtors still believe the it is 2007 and that a direct lender holds more weight then a mortgage broker.  We are all affected by the same guidelines and no lender or broker has an advantage over another. The reason the realtor is steering you towards a direct lender is probably because she has a relationship with them where she receives compensation. Your realtor should have no say on who you use for financing. It is the internet age and brokers are the future vs. direct lenders.  They have many banks, programs and rates to choose from vs. being stuck with 1 product per direct lender. 
  • June 04 2014
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Your agent does not know much about lending. In truth there is not any direct mortgage lender. Even BoA and Wells Fargo are not direct and write their loans per guidelines that can be sold on a secondary market. I am a broker but when we opened years ago were were a 'direct lender' and our customers were mortgage brokers. We chose to become a broker because as a broker we can work in real estate sales and loans. Direct lenders sell themselves to Realtors as something special but they have the same underwriting rules, the same lenders, and the same rates. I don't know of a "direct lender" who can beat my service and pricing in the market place.
  • June 04 2014
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This has been my experience, rates are rates.

Brokers:
1.) Generally lower costs.
2.) Generally have more options.
3.) Generally more knowledgeable (because they have to be licensed whereas someone working for a bank or credit union does not).
4.) If you can find one with in-house underwriting, closing times are generally quicker as well.
5.) If lender isn't reputable, they may not return your calls to avoid delivering bad news (we have plenty of people calling us because other lenders simply didn't want to deliver bad new and dragged their feet).

Banks:
1.) It's convenient, they have many locations.
2.) They often advertise rates with points (be careful).
3.) They are not required to be licensed.
4.) You will get cross sold on other products.
5.) You may talk with the loan officer once and then their assistant or processor the rest of the time.


Things to check before you choose a lender:
1.) Ask for a fees sheet that breaks down TOTAL COSTS (including 3rd party fees, appraisal, credit report, title insurance, etc).

2.) Ask how long the interest rate is good for. They have rate locks at 15, 30, 45, 60 day etc.

3.) Get an estimate for the amount due at closing.
    a.) REGARDLESS of the lender you choose, a few things are going to remain constant at closing: Real Estate Taxes Due, Homeowner's Insurance Annual Premium, Real Estate Tax Proration, Seller Credit.
    b.) Ask for a breakdown of each item so that you can more easily compare your options.

4.) Get an estimate for the monthly payment:
    a.) A 3.25% FHA interest rate may provide a lower P&I payment, but it includes PMI. Also, a 3.25% FHA interest rate may include a 1.75% funding fee, so you're financing more. Whereas a 3.5% conventional interest rate will not include a funding fee and you are therefore not financing as much, so your P&I payment may be lower.
    b.) A mortgage payment CAN consist of Principal, Interest, Real Estate Taxes, Homeowner's Insurance, HOA Dues, Condo Fees, Mortgage Insurance

5.) Make sure your rate is FIXED if you want a fixed rate. I have had too many (1+) contact me and say they found out that their last lender put them in an Adjustable Rate Mortgage and they were unaware their rate could change.

6.) You can never ask too many questions. Our job is to make sure you understand the process. The better you understand things, you set yourself up to become a better borrower and prevent yourself from getting ripped off.

Best of luck!
  • August 09 2013
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In my experience, there are good brokerages and good direct lenders. There are also bad with each. I have worked for/with both direct lenders and as a broker.

"was tired of clients getting better service, better rates and fewer costs from brokers.."
I found the opposite to be true.

Brokers:
Pro- They have many options for lenders. Since every Bank seems to have one or two niche products, but not all, brokers can go to each bank for those niches. They can sign up with different pricing agreements with each bank. They can set one or more very low to keep a go to bank with a rock bottom pricing to try to low ball a deal.
Con- They are the middle-man. Once your loan is closed they have no access to help you while your loan is being serviced. They do not work under the same roof as the underwriters and have little input on your loan. They are limited in communication with the banks they broker to. They do not need to be accountable after the close of the loan.

Direct:
Pro- Every aspect of the process is "In-House". The Loan Officer typically has more of an ability to communicate with everyone involved in the loan. They have the ability to offer portfolio products that go outside the box and get pricing exceptions to get better rates.
Con-The bigger the direct lender, the more bottle necked they get. For a refi with the three biggest, prepare to wait 60-120 days for a closing. If it is a depository bank, you may be just a number. The Loan officers mostly have so much volume, they could care less if you walked out the way you came; without a loan.
  • April 20 2013
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Your real estate agent is incorrect.  Frequently Mortgage Brokers offer much better rates with fewer costs.  Remember, a Mortgage Broker shops several lenders on your behalf and finds the best deal for you.  Every loan is different and underwriters can let their own bias interfere with their approval process. With a Mortgage Broker you can be certain your application is being sent to the lender who is most likely to approve you AND get you the best deal.  I have worked for direct lenders my entire career and was tired of clients getting better service, better rates and fewer costs from brokers... now I work with a broker!  If you can't beat them.... join them!
  • April 20 2013
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Some selling parties require you get pre-qualified or pre-approved from a lending source they trust.  I am not a big fan of it however you have to play by the sellers rules if you want to tango with them.  Usually.....you will not be required to use that company but they still want you to get pre-qualified from them. 

This is because many pre-qualifications are crap and the people then can't get a loan after they get their offer accepted.  As far as cost and rates it is not true that direct lenders are always cheaper with closing cost and interest rate.....in fact, as a Mortgage Broker, I will blow a Bank right out of the water in most cases. 

I would not do what you agent say's and contact 3 places.....espacially if you already were pre-approved my a Mortgage professional.  BUT...if youi have to apply at X place to submit your offer then you hav eto do what you have to do. 
Good luck.
  • May 14 2012
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Profile picture for Optimus012
Yes I plan to go through the whole preapproval process with B of A, Wells Fargo, and Chase with the help of my agent. It's all scanned and ready to be sent off in an email. Still not sure who I'd go with though. I suppose whoever is cheaper and gives me the best loan terms.
  • May 13 2012
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Banks offer no closing cost programs also; it's not unique to brokers.

As for the 5 minute "pre-approval" that's called the  "if you're not lying to me then I'm not lying to you" pre-approval. If an agent is willing to bet her commission on that then I can only say more power to you.

For one that means something be ready with your tax returns, W2s or 1099s, pay stubs and bank statements.
  • May 13 2012
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A preapproval from a known lender like BoA or Wells is usually what the REO or bank owned seller is looking for. A preapproval is no effort to get and takes 5 min on the phone with a lender. They ask how much you make, how much you owe and how long on the job. Any foreclosures or bankruptcies and stuff like that. Then then issue a letter saying something basic like Johnny is prequallified to purchase something up to $300,000 based on the information disclosed to me. If you are getting something more then it is over kill. A loan is a loan and the seller should not care as long as you can get it.
  • May 13 2012
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It is easier to get the preapproval from the mortgage brokers then the bank, however like your agent said, a bank's approval is stronger.
in many cases, cheaper closing cost and lower mortgage rate from the mortgage broker then the bank, since the bank (loan) officers, they act not differently from the mortgage brokers, in fact the bank officers are the mortgage brokers, they got the commission from the banks, as same as the mortgage brokers, the different it that, while the mortgage broker shops the rate and the fee at many different banks and they get for you the best one, the bank officers shop the rate and fees only from their banks and they follow their bank's rate and fees.
Also the Mortgage brokers have the no closing cost program that the banks have none.
  • May 13 2012
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