Many people who plan to buy a home for the first time are thrust into a world that they don’t fully understand. How does one get insurance and what does that insurance cover? How many inspections should be performed on a new house? At what point is the buyer “on the hook” for the purchase, and what would it take to be allowed to walk away?

The most pressing question, however, tends to be “how do I get financing, and how to I get it at the best possible rate?” This is when it becomes important to contact a direct lender and/or a mortgage broker. Here are the functions and differences between these two.

What is a Direct Lender?

A direct lender is exactly what it sounds like: a person or institution that lends you money. A mortgage lender might be a bank or an independent institution. In most cases, banks will have somewhat rigid policies and rates, because they finance so many loans (not just mortgages) that they know what works and don’t absolutely need your business.

A direct lender, however, will often operate in a slightly different way to the banks. When searching for a direct lender you may come across short term loan providers, such as, who offer loans designed to be taken out as a short term solution to a financial emergency. These loans are often fairly small in size compared to a long term loan. While short term loans are used to cover smaller purchases, long term loans will be taken out to cover much larger investments such as a house, car or even a business to name a few. Certain long term loan providers will likely specialise in mortgage lending. If they make all of their money on home loans like these, then they will likely have much more flexibility than the banks. This could result in more loan options and slightly lower fees.

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A pending homebuyer will have time to approach many lenders to try to find the best rates and terms. Of course, all lenders have the same base interest costs, meaning they can only go so low. There are savings to be found, but only to a certain point. Still, it’s more than worthwhile to shop around, especially for variation in terms that will affect your life for many years to come.

What is a Mortgage Broker?

A mortgage broker is not a lender at all. Instead, they are third parties who go between you and a variety of lenders, in search of the best possible options. The obvious benefit is convenience. It’s great to have only one person to talk to, and always know that your questions will be answered. Typically the broker will find the best possible options, saving you a lot of time and effort.

On the other hand, the mortgage broker won’t do anything you couldn’t do yourself. They’ll also charge you extra money for the work they do for you, and you’ll still have to pay all the costs associated with working with a direct lender once you’ve selected one through the mortgage broker.

For people wanting to save as much money as possible, looking for a great direct lender is likely the best option. For those wishing for convenience and a hands-off buying experience, a mortgage broker offers much. It’s all up to you, your budget, and your expectations. If you don’t have a great deal of time or interest, a broker may be your best friend. But if you are in search of savings, you may enjoy the search for the direct lender with the best rates.