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Mortgage Loans 101 - Primary Lenders vs. Mortgage Brokers

by Brandon Cornett

Buying a home is an exciting time for most buyers. As exciting as the home search is for most, the mortgage process is sometimes overwhelming. One of the most confusing decisions for many home buyers, especially first-time home buyers, is whether to use a primary lender or a mortgage broker when obtaining a loan.

Difference Between Primary Lenders and Mortgage Brokers

Before deciding which option is best for you, it is important to understand the difference between primary lenders and mortgage brokers. When meeting with a mortgage professional, you will want to know whether he or she represents the lending institution directly (a primary lender) or represents multiple lending institutions (mortgage broker).

Primary lender representatives are able to place you in any of the programs offered by that particular bank, for which you quality. Mortgage brokers are able to place you in any of the programs offered by all of the lenders they work with, for which you quality.

The question most home buyers have is, "What are the broker's fees, and who pays them?" This is an important consideration, given the fact that the fees are generally expressed in points, with each point representing one percent of the mortgage.

Before making a decision on whether or not to use a mortgage broker, you will first want to find out who pays his or her fees. In many cases the fees are paid directly by the lending institution they place the loan in. Thus, they do not cost the home buyer any money. But in other cases, the home buyer may have to pay the fees directly.

Home buyers with questionable credit, or those with problems proving their full income, may consider using mortgage brokers because they will have more options at their disposal. The last thing you want to do is start applying to many banks on your own, since each bank will run your credit which impacts your credit score.

Choosing a Mortgage Professional

When meeting with a mortgage professional from a primary lender or from a mortgage brokerage, make sure you feel comfortable with them and feel confident in their abilities. You should feel free to ask questions and feel confident you are having your questions answered to your satisfaction.

If you are not comfortable with the mortgage professional you meet with, ask to see another person or find another lender or broker until you feel comfortable with the person who is helping you buy your new home.

Full Disclosure During the Mortgage Process

Many home buyers try to hide things they believe will hurt their chances of approval -- such as credit issues, income, etc. But eventually, everything will be revealed during the mortgage process, so it's best to be forthright from the start. Provide your mortgage professional with all the information they need so they can place you in the right mortgage program.

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Brandon Cornett is the publisher of Home Buying Institute.