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Talk to any loan officer, and they'll tell you that it's not easy to close a mortgage. But a professional loan officer could make the process seem smooth to the borrower. When you buy a house, you need a good loan officer who works for the right company to get you through the process without too many hiccups.
A factor that plays a major role in the progress of your mortgage is the type of company you use. It makes a huge difference if you use a mortgage brokerage or a direct lender.
Mortgage Broker vs Direct Lender
What is a Mortgage Broker?
A mortgage brokerage is a company that originates loans for clients and puts them together with a bank that will lend the borrower the money they need to buy their home. After a mortgage broker looks through the client's documents and gains an understanding of their loan scenario, they try to figure out which bank is most suitable for that specific client.
Every bank has slightly different criteria, so deciding which one to choose will depend on the borrower's situation. A good mortgage broker might sign up to do loans with dozens of banks, but will have a small handful of "go-to" lenders. Some of the factors that might help the mortgage broker determine which bank to choose include:
- How much money the borrower has for a down payment
- The client's credit score
- If the buyer is self-employed or an employee
- Employment history
- The borrower's ability to produce documentation
A good mortgage broker will figure out the best bank to use for their client's particular situation.
What is a Direct Lender?
A direct lender works differently. Direct lenders hire loan originators, processors, underwriters, and quality control experts to deal with their mortgages. Every part of the process is handled either on-site or within the company but in multiple locations.
Direct lenders process and underwrite loans in-house, and they lend the money to their clients at closing. They may sell the loan after closing, but they set criteria that they're comfortable with and have the ability to make decisions when a client doesn't fit their set of rules perfectly.
What is the Processing and Underwriting Process?
Loan Processing
When you fill out a mortgage application, your loan officer has to gather documentation to verify your information. They then pass your info on to a processor to make sure that everything you claimed on your application is accurate. If anything is missing or inaccurate, they will either have your loan officer reach out or they will call you on their own.
Loan Underwriting Process
Once your paperwork is in order, the processor will hand your file over to an underwriter who will check if you qualify for the loan based on all of the information you provided. The underwriter is the person who signs off the loan and gives the lending institution the okay to lend you money.
Most loans have a lot of behind-the-scenes back and forth between the loan officer, processor, and underwriter. It is of utmost importance for communication to flow smoothly between these parties for a loan to close without too many hiccups.
What are the Advantages of Using a Direct Lender?
A direct lender has several advantages over a broker. The following are three benefits to using a direct lender:
1. When you use a mortgage broker, both the broker and the bank have to make money. By using a direct lender, you're essentially cutting out the middleman, which usually means that there will be fewer fees involved with your mortgage.
2. Direct lenders have more autonomy than mortgage brokers. For example, some banks have set rules and require two years of tax returns for every self-employed borrower. A lender can often use discretion when a borrower has compensating factors-like good credit or reserve funds-and approve the loan with one tax return.
3. Loan officers have direct access to processors and underwriters and can clarify situations that would otherwise get a loan nixed. They also have a good idea of what their company is willing to overlook or go easy on and what they won't let slide, so they can tell from the start if their company is likely to approve your loan.
First Savings Mortgage is a direct lender. We deal with every aspect of your mortgage in-house to ensure as smooth a process as possible. If you're in the market to buy a house or refinance your current home, reach out to one of our professionals to get the advice and service you deserve.
Please note, by refinancing your existing loan, your total finance charges may be higher over the life of the loan.