Direct Lender vs Mortgage Broker: Finance Your New Home Build

Congratulations, you’ve decided to build a home! Perhaps you’ve even met with your new home builder, narrowed down your design and had your lot surveyed for construction. However, there is one thing you can’t move forward on your build without – financing.

Most builders will ask about your financing plans from the first site inspection. This is the perfect time to decide on the type of financial institution or lending authority you will use. If your builder is an industry expert, they will likely have helpful advice or connections to help with your decision. The first payment will generally be required during the design stage of your build so your team can compile the costings of your build.

Additionally, during this stage, your builder will engage the services of external contractors and perform contour surveys and soil tests on your plot. The ball really starts rolling when you’ve met with a local solicitor and decided on your custom home builder. So, we suggest having your finances in order to avoid costly delays after kick-off.

Curious about the different stages required to complete a new home build? Read through our process for a new home build. 

The only thing you need to start building a home

While many people think you need all your ducks in a row before engaging with a custom home builder, the only thing you really need is a dream and a way to fund it. Having a realistic financial plan in place can prevent administrative headaches and give you confidence when creating your design and planning your budget.

Your mortgage is likely the most significant investment you will ever make, so nobody could blame you for using an abundance of caution in your decisions regarding your lender.

One quick google search will tell you that the options for financing your build are many, and it can be challenging to know which one is right for you. The two most common options are direct lenders and mortgage brokers, but which one is best for your situation? We’ve created an unbiased, practical guide on the difference between the two to make your decision easier, giving you the confidence to move forward with your build.

Wondering how much money you need to build a new home? Read our blog on home building material costs in 2022.

Mortgage broker vs direct lender

Mortgage Broker

When you’ve fallen in love with your land or property, and it’s time to shop around for the best mortgage to fund your project, you may find yourself at the mortgage broker. A broker is a financial professional who acts as an intermediary between lenders and borrowers.

The money for your property won’t come from the mortgage broker’s own pocket but from the best lender for your situation based on their shopping around and research. Your mortgage broker will be driven to find the best deal for you based on your needs and financial situation, and they will develop your application with the correct information, including income, payslips, credit reports, and more.

Brokers will continue to communicate between you and the lenders and make the loan process easier to understand. In addition, they will generally suggest the best options for your application to give it the highest chance of approval, keeping your credit score safe and making the process less stressful. Paid on a commission basis, they are driven to be the one-stop shop for all your mortgage needs and concerns, helping you secure the best loan possible.

Key Attributes of a Mortgage Broker

• Acts as liaison between lenders and borrowers
• Works to find the best deal for you
• Help you develop your property application
• Keep your credit score safe while giving you the best chance of approval
• Paid on commission

Direct Lender

A direct lender is a bank or private entity that provides the actual finances for your mortgage. These can be financial institutions such as private companies dealing specifically with mortgages or large banks that you may already use for your personal finances. Many borrowers choose to go to their bank as the first port of call when looking to secure a mortgage loan, and sometimes, this can result in a better interest rate and higher loan amount. However, direct lenders typically have a set selection of products available for their loans, and if your situation doesn’t fit their parameters, your loan will not be successful.

The process of applying through a direct lender is much the same as with a mortgage broker, requiring the same documentation and a comprehensive application. Going through a direct lender cuts out the middleman and has the potential to speed up the process.

If you have a reasonably straightforward application, confident finances, and a good standing relationship with your bank, going directly through them might end up being the more successful choice. However, you will only be applying for their available loan options. If you are denied and need to shop around for other loans, this can be detrimental to your credit score, not to mention time consuming and stressful.

Key Attributes of a Direct Lender

• Direct borrower
• Cuts out the middle man, potential to speed up lending process
• Direct lenders may be better choice for confident applicants
• Can affect your credit score if direct lender denies your application

Summary of these two home lenders

While mortgage brokers and direct lenders have the same goal – to provide people with a mortgage loan – they do so very differently. A mortgage broker will work with the customer to help them find the best lender for their situation, with access to many different products and institutions to finance the loan.

On the other hand, a direct lender will determine whether the customer fits the parameters of the loan based on the bank or institution’s lending criteria. A mortgage broker will act as an intermediary between you and a range of different banks to secure a loan, someway, somehow.

Ultimately, both banks and mortgage brokers can work to secure you a loan. The best choice for you will depend on your financial situation. Many people with a complicated situation prefer a mortgage broker to access a larger pool of lenders. On the other hand, if you already have a good relationship and borrowing history with your bank, it may be safer and faster if you use them for your home loan.

Interested in learning more about new home finances?

Read our blog about budgeting for a new home build.

Choosing the best financing for your new home

One of the many perks of building with a custom home builder is the individualised focus you will have from a team of industry experts.

We walk with our clients from the very start of their home building journey, and if you are struggling with your budget or need to organise the funding for your home, we can connect you with reputable mortgage brokers to get the ball rolling. Our industry experience comes with a knowledge of external services and an insight that can prove invaluable to your building experience.

Whether you have your plans sketched out to the finest detail, or you’re just dipping your toe into the custom home building process, we can help.
Give our team a call on 02 9481 7441.