Mortgage Broker vs Direct Lender: Which Is Right for You?

A mortgage broker shops multiple lenders to find you the best rate and terms, earning a commission from the lender or borrower. A direct lender (bank, credit union, mortgage company) offers their own loan products with their own rates. Brokers offer more options and may find better deals; direct lenders offer more control and may have exclusive products. The best choice depends on your situation—shopping both often yields the best results.

Understanding the Difference

Direct Lenders

Who they are:

Banks (Chase, Wells Fargo, Bank of America)
Credit unions
Mortgage companies (Rocket Mortgage, loanDepot)
Online lenders

How they work:

Originate and fund loans directly
Offer their own products
Set their own rates
Keep or sell loans after closing

Mortgage Brokers

Who they are:

Independent professionals or companies
Licensed to originate loans
Work with multiple wholesale lenders

How they work:

Shop your loan to multiple lenders
Find best rate and terms for your situation
Lender funds the loan (not broker)
Earn commission for matching borrower with lender

Correspondent Lenders

A hybrid:

Originate and fund loans (like direct lender)
Sell loans to larger investors after closing
May offer more products than direct lenders
Work like mortgage companies

Pros and Cons of Each

Direct Lender Advantages

Control over process:

One point of contact
Direct communication with decision-makers
May resolve issues faster

Relationship benefits:

Existing banking relationship may help
Portfolio products for unique situations
Potential rate discounts for customers

Certainty:

Know exactly who your lender is
Consistent communication channel
May retain servicing

Direct Lender Disadvantages

Limited options:

Only their products available
May not have best rate
Specific guidelines may not fit your situation

Rate variability:

Each lender prices differently
Must shop multiple lenders yourself
Time-consuming comparison

Mortgage Broker Advantages

Multiple options:

Access to many lenders’ products
Shop for best rate on your behalf
Find programs that fit unique situations

Competitive rates:

Wholesale rates (sometimes lower than retail)
Competition among lenders
May find better deals

Expertise:

Experience with many loan types
Know which lender fits which borrower
Navigate complex situations

Mortgage Broker Disadvantages

Less control:

Broker is intermediary
May not speak directly with lender
Communication can be slower

Compensation concerns:

Broker earns commission
May steer toward higher-paying lenders
Important to understand fee structure

Variable quality:

Broker quality varies widely
Need to vet carefully
Some may not have best relationships

How Each Gets Paid

Direct Lender Compensation

Loan officers earn:

Salary plus commission, or
Pure commission based on volume
Paid by their employer

Lender profit from:

Origination fees
Spread between your rate and wholesale rate
Servicing income
Selling loans on secondary market

Broker Compensation

Brokers earn through:

Lender-paid compensation (from wholesale lender), or
Borrower-paid compensation (from you), or
Combination

Disclosure required:

Brokers must disclose compensation
Shows on Loan Estimate and Closing Disclosure
Typically 0.5-2.75% of loan amount

Important: Brokers cannot receive both lender and borrower compensation on the same loan.

When to Use a Direct Lender

Good Situations for Direct

Existing relationship:

Already bank with them
May get loyalty discounts
Simplified documentation

Specific products:

Portfolio loans (unique situations)
Jumbo loans (some banks specialize)
Construction loans

Speed needs:

May be faster with direct control
In-house underwriting
Known timelines

Simple situation:

Standard W-2 income
Good credit
Conventional purchase
Less need for shopping

When to Use a Mortgage Broker

Good Situations for Brokers

Complex situation:

Self-employed income
Multiple properties
Non-traditional documentation
Credit challenges

Shopping convenience:

Broker shops for you
Compare multiple options
Save time on research

Best rate hunting:

Brokers see wholesale rates
May find lower rates
Negotiate on your behalf

Unique loan needs:

Non-QM products
Specialty programs
Hard-to-place loans

Comparing Costs

Rate Comparison Example

Shopping a $400,000 loan:

Source	Rate	APR	Closing Costs
Big Bank A	6.625%	6.85%	$8,500
Credit Union B	6.50%	6.72%	$7,200
Mortgage Co C	6.375%	6.68%	$9,800
Broker (Lender D)	6.25%	6.55%	$8,000
Broker (Lender E)	6.375%	6.60%	$6,500

The winner varies depending on rate vs cost preference.

Why Rates Differ

Direct lenders:

Add margin to cover overhead
Retail pricing
Relationship factors

Brokers:

Access wholesale pricing
May have lower overhead
Competition among wholesale lenders

Total Cost Analysis

Don’t just compare rates—compare total costs:

Calculate:

APR (includes rate + fees)
Cash to close
Monthly payment
Break-even on closing costs

Questions to Ask

Ask Direct Lenders

What loan products do you offer?
What’s your best rate for my situation?
Are there relationship discounts available?
Who will service my loan after closing?
What are all the fees?

Ask Mortgage Brokers

How many lenders do you work with?
How are you compensated?
Which lenders do you recommend for my situation and why?
Can you show me options from multiple lenders?
What’s your experience with my loan type?

Ask Both

What’s the rate, APR and monthly payment?
What are total closing costs?
How long will the process take?
What documentation do you need?
What could delay or derail my loan?

How to Shop Effectively

The Optimal Approach

Shop multiple sources:

1-2 direct lenders
1-2 mortgage brokers
Online rate comparison

Within 14-45 days:

All inquiries count as one credit pull
Shop aggressively during this window
Compare apples to apples

What to Compare

For accurate comparison:

Same loan amount
Same loan type
Same lock period
Same points structure

Key numbers:

Interest rate
APR
Total closing costs
Monthly payment

Red Flags

Warning signs:

Pressure to lock immediately
Reluctance to provide written estimates
Vague or changing fees
Unusually low rate (bait and switch)
Poor communication

Broker vs Direct: By Loan Type

Conventional Loans

Either works well:

Direct lenders competitive
Brokers have access to many conventional lenders
Shop both for best result

FHA Loans

Brokers often advantageous:

Know which lenders are FHA-friendly
Can find overlays that work for you
Experience with FHA quirks

VA Loans

Specialists recommended:

VA-focused lenders or brokers
Experience matters for VA
Know entitlement and funding fee issues

Jumbo Loans

Direct may be better:

Banks have portfolio products
Relationships help
Brokers have fewer jumbo options

Non-QM / Alternative

Brokers usually better:

Access to specialty lenders
Know the non-QM market
Can place difficult loans

Making Your Decision

Consider Your Priorities

Priority	Better Choice
Lowest rate possible	Broker (shops multiple)
Relationship banking	Direct lender
Complex situation	Broker
Speed	Either (depends on specific)
Personal service	Either (depends on individual)
Specific product	Whoever offers it

The Best Strategy

Don’t choose just one:

Get quotes from direct lenders
Get quotes from mortgage broker(s)
Compare all options
Choose the best total package

Frequently Asked Questions

Are mortgage brokers more expensive?

Not necessarily. Brokers access wholesale rates and their compensation is disclosed. Total costs may be lower, the same, or higher—compare Loan Estimates to know.

Do brokers get paid by the borrower?

Sometimes. Brokers receive either lender-paid or borrower-paid compensation (not both on the same loan). Lender-paid is more common and built into the rate.

Can I negotiate with a mortgage broker?

Yes. You can negotiate compensation and ask for better rates. Brokers have flexibility in their margins, though wholesale rates have limits.

Should I use my bank for a mortgage?

Get their quote, but don’t assume it’s best. Existing relationships sometimes help with approval or get discounts, but rates may not be the lowest. Always compare.

How do I find a good mortgage broker?

Ask for referrals from real estate agents, friends or family. Check reviews and licensing. Interview them about experience, lender relationships and communication style.

Can a broker guarantee approval?

No. The wholesale lender makes the final decision. Good brokers know which lenders will likely approve your situation, but no guarantee exists until underwriting is complete.

Do brokers work with all lenders?

No. Each broker has relationships with specific wholesale lenders. A broker might work with 20-50 lenders, but not every lender in the market.