In Louisiana, as anywhere around the US, the real estate business is a lot more complicated than most people know. Take lending, for example. Not every homebuyer goes right to their regular bank to get a mortgage. In fact, the vast majority of buyers do not. Many utilize mortgage brokers. That presents a question: do you know the difference between mortgage lenders and brokers?
Knowing the difference can help you in your search for an affordable loan. And by the way, we recommend doing your best to get preapproval from a lender before making any offers. Preapproval goes a long way toward convincing a seller to take your offer.
Lenders Provide the Financing
Lenders do exactly as their name suggests: they provide the financing you need to buy a home. Those of us in the real estate industry often refer to lenders generically as banks. Many of them are. But many does not mean all. Lenders take many different forms:
- Retail Banks – The same bank through which you have your checking and savings accounts might also offer mortgages. These types of banks used to be called savings and loans. They are still the most common type of retail bank around.
- Credit Unions – Credit unions are very similar to retail banks in terms of function. What makes them different is that they are actually owned by their depositors. As such, credit unions do things slightly differently.
- Mortgage Lenders – Mortgage lenders are private financial services companies that concentrate exclusively on mortgages. They do not offer retail services like checking and savings accounts, certificates of deposit, etc.
Mortgage lenders can handle all their client relationships in the house. But more often than not, they leave that portion to mortgage brokers. They allow brokers to be their customer-facing representatives while they take care of actually writing and funding mortgages.
What Mortgage Brokers Do
A mortgage broker is the real estate version of an insurance broker. Think of your own situation. If you purchase your car and homeowners’ insurance through a broker, that broker acts as the go-between you and your insurance company. Your broker may represent more than one insurance company.
Mortgage brokers do essentially the same thing. They represent private lenders looking to write mortgages for homebuyers. You generally have three types of brokers, beginning with the exclusive broker who only represents a single mortgage lender. Exclusive brokers are definitely in the minority.
Next are semi-exclusive brokers who limit themselves to just a small number of mortgage lenders. They only present those lenders’ products to customers. They are followed by the third type of mortgage broker: the independent broker.
An independent mortgage broker will represent any mortgage lender whose products meet the needs of most clients. The independent broker shops around for the best possible deal for every customer. And because a lot of lenders make special deals available only through brokers, going with a broker can mean getting a mortgage deal that would otherwise not have been available to you.
Don’t Settle for Just One
All this being said, real estate experts recommend not settling for just one offer. A better strategy is to shop around. Comparing multiple mortgage offers increases your chances of getting the best possible deal. Should you decide to work with a broker, insist that they give you several different options to look at.
Between lenders and mortgage brokers, homebuyers get the financing they need to complete their purchases. Without mortgages, buyers would end up having to save for literally decades. Thank goodness buying a home is possible with a loan.