What Is Direct Mortgage Lending?
When you are getting ready to buy a home, there are many different options for finding mortgage loans. These can be broadly divided into two different categories, direct lenders and mortgage brokers. Direct mortgage lenders are companies that issue home loans directly to home buyers. These include institutions like credit unions, mortgage companies, and banks. Mortgage brokers, on the other hand, are intermediaries who connect home buyers with multiple direct lenders to help them find the best option. In this blog, we’ll be exploring more about direct mortgage lending and the alternatives so you can make the most informed decisions during your own mortgage hunt.
How Do Direct Lenders Work?
In a nutshell, direct lenders use their own money to originate a loan to the home buyers. This means they pay the cost of the house to the seller, and then the home buyer pays them back over time through their monthly mortgage payments.
There can be some confusion about exactly what kinds of companies qualify as mortgage lenders, and questions like “What is a direct lender vs bank?” and “Is it better to go through a lender or bank or a credit union?” are common. The answers to both are that credit unions and banks ARE direct lenders, since they use their own funds to issue mortgages, like all direct lenders do.
But banks are certainly not the only direct lenders. Credit unions, mortgage companies and government backed loans are the other major direct lenders. This may have you wondering, “who is the largest non-bank mortgage lender?”
- Independent mortgage companies account for about 64% of mortgages
- Government backed loans (such as VA, FHA, Farm Service and Rural Housing loans) account for about 30% of mortgages
- Credit Unions account for between six and nine percent of mortgages
What Is the Benefit of a Direct Lender?
Perhaps the biggest benefit of a direct lender is that it streamlines the mortgage process. Since you are working directly with the organization that’s funding your house purchase, there are no intermediaries to go through during the process. Additional benefits include:
- No broker fees
- Some lenders or mortgage options are only available through direct lenders, so if you go through a broker you will be missing these opportunities
- Direct relationship with the organization issuing your loan, so no need to consult with anyone else to get your questions answered
At Indiana Members Credit Union (IMCU), we pride ourselves on our service focused lending. By working directly with our members, we make sure we give them the accurate information they need with the individual attention they deserve.
What Are the Negatives in Using a Direct Lender for Mortgage Loans?
Although there are many positives for working with a direct lender, there are potentially some drawbacks with some lenders as well. These drawbacks can be the most pronounced if you are looking for a mortgage and don’t fit the ‘standard’ financial picture. This could be because you are a small business owner and do not have a regular paycheck issued by an employer, or because you have a lower credit score than many lenders prefer.
In these non-standard situations, the negatives for direct lenders are:
- You have to meet their specific criteria to be eligible, if you do not your application will be turned down
- If you are rejected by the first direct lender, applying to another lender requires more time and the possibility of a temporary credit score reduction from running multiple reports
But at IMCU, we work with you to find the right solutions. We pride ourselves on being a part of our communities, and empowering all our members to find the best resources to reach their financial goals. When you’re ready to start your mortgage search, our mortgage loan officers will work to understand your specific financial situation and offer the best options to fit your needs.
Who Is the Top Mortgage Lender?
The very best mortgage lenders are the ones with a proven track record who work with you to help you achieve your home ownership goals. At IMCU, we are mortgage experts with experience in conventional mortgages, as well as FHA, fixed, adjustable, and jumbo mortgage loan programs. We are proud to receive a great number of referrals from our REALTORS® members, which shows us that we are succeeding in our service-first approach to mortgage lending.Visit our website for the most up-to-date mortgage rates or apply for pre-approval to see where you stand on your house buying journey.