When is a broker the best choice for a mortgage?
There has long been debate about whether a mortgage broker or a direct lender is the best source for a purchase or refinance loan. Advertisements for each platform claim the higher ground, but what is best for you? Mark Wells at Preferred Financial addresses why a mortgage broker may be your best bet when seeking mortgage financing.
Some say a direct lender is best because they make the actual loan decision, whereas a broker does not. Why is that not better for me? If the lender decides not to give you a loan, then you have no options at all. With a mortgage broker, if one lender turns your loan down, he can switch the loan to another lender, who may approve it.
Aren’t the guidelines all the same? No—for example, Fannie Mae and Freddie Mac both book conventional loans, but their guidelines in certain situations can be completely different. A direct lender or bank usually only sells to one or the other but not to both. A broker has multiple lenders, some who sell to Fannie Mae and some to Freddie Mac, so they can use either channel.
If I knew the guidelines and could select a direct lender based on them, wouldn’t a direct lender still be best? It might take you years to fully understand each agency’s guidelines, but beyond that, each lender has a human underwriter who will review your file and make a final decision. That person can easily make mistakes or interpret your situation incorrectly. With a direct lender, you have no recourse if they turn you down. With a broker, you have an advocate who is working for you, who can point out the error or misinterpretation and get the decision overturned. Nearly 25 percent of all loans we book get an initial turndown or ‘suspension,’ and 90 percent of those decisions are overturned once we point out the errors to the underwriter.
Online lenders and some banks say they can approve my loan in less than 30 minutes. How could a broker do the same thing if they don’t make the lending decision? That claim is a little misguided. No one can give you a final loan approval without a fully documented file, including an appraisal, that has been reviewed and approved by an underwriter. The ads are referring to a preliminary approval based on information you provide (taken at face value), that has been compiled along with your loan scenario, and run through one of the agencies’ automated underwriting systems (AUS). Brokers have access to these same AUS systems and can give you the same type of preliminary approval. Final approval is always subject to an underwriter’s decision— whether through a direct lender or a mortgage broker.
How can a mortgage broker be my advocate? A direct lender must assess your loan scenario from a risk position. They must ask the question, ‘Why should we NOT make this loan?’ A mortgage broker does not have to assess risk since they are not lending you their own money. So a broker asks the question, ‘How do we get this loan approved?’ The difference is significant.
I operate a Mortgage Broker platform. I welcome questions and comments and can be reached at 864-235-9596 or via email at Mark@TheGreatestRates.com.
Or Text Me Now! 864-430-4856.
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