Navigating your way through the tricky process of qualifying for a mortgage is not for the faint of heart. Trying to figure out the best program, who to deal with to help navigate the process, and what what your options are with regards to interest rates, down payments and closing costs is enough to make the average Joe quite baffled.
Common questions that overwhelm the average buyer or homeowner looking to refinance are easily accessible today with the information highway available to consumers. Here is the most common question.
Should I use a Mortgage Broker, Mortgage Banker or Retail Lender?
The general rule when shopping for a mortgage is to get a few quotes to see who is willing to earn your business in the competitive mortgage market. Most brokers, bankers and retail lenders have similar rates, so it ultimately boils down to service and knowledge.
A Mortgage Broker acts as an intermediary between borrowers and mortgage banks or lenders. There are both advantages and disadvantages of working with a Mortgage Broker.
Advantages- Mortgage Brokers work with a large variety of banks, some of whom, you may never even heard of , or have the ability to contact directly. The alternative to working with a Mortgage Broker is that you have to call numerous banks and lenders to compare the best rates, costs and programs. Mortgage Brokers also are usually trusted by banks and lenders to disqualify applicants prior to going through the entire process. A lot of banks or lenders will not deal directly with the public, as using Mortgage Brokers as their monitors, allowing the lenders to be more efficient in underwriting loans. Another advantage to using a Mortgage Broker is that they are always dealing with wholesale rates because of the amount of volume they are sending to different lenders. This affords the consumers a discounted rate or loan cost due to working with a Mortgage Broker. Common sense tells us that a Bank or Lender is more likely to offer a lower rate to a Mortgage Broker that sends them $1-5 million a month in business, compared to a consumer who may apply for a loan once every 2-3 years in the amount of $200K or so. This is why using a Mortgage Broker can be quite beneficial to a consumer. Mortgage Brokers also can help negotiate a deal with lower fees, such as, appraisal fees, origination fees( also known as points), Discount fees, underwriting fees, application fees and other “junk fees” lenders sometimes charge.
Disadvantages- Mortgage Brokers interests are not always the same as the consumer. Your goal is to get the best deal possible, with the lowest payment and the least amount of fees. Mortgage Brokers goal is to provide you with what you are looking for, but ultimately, to make a living doing so. The most common form of broker compensation is paid directly from the bank to the broker for originating the loan at a specific interest rate.
A Mortgage Brokers initial “Good Faith Estimate” can change based on many different factors, including, credit score, down payment amount, and income figures being overstated by a borrower. While the Good Faith Estimate should be done in good faith, thats not always the case. The most important factor to know about Good Faith Estimates is the last word in the term. It is in fact an estimate, and should be treated as so. Another disadvantage is that some lenders will not work with Mortgage Brokers. After the mortgage melt down of 2008, some lenders are very selective with who they will work with on a wholesale basis.
The best thing you can do is work with a Licensed(NMLS), reputable Mortgage Broker who can provide references to show that they have and will continue to work for the consumers best interests.
A Mortgage Banker is a company , Individual, or Financial Institution that originates mortgages. Mortgage Bankers use a warehouse line or their own money to fund mortgage loans. After the mortgage loan is funded, a mortgage banker can either hold the loan in their portfolio, or sell the loan to another lender. A Mortgage Banker is always looking to earn the fees associated in the mortgage transaction. Those fees include, origination fees, discount points, application fees, underwriting fees, yield spread premiums and service release premiums. Larger Mortgage Banks tend to service the loans they originate, while smaller Mortgage Banks tend to sell the loan to larger Mortgage Banks and lenders.
The biggest advantage of working with a Mortgage Banker is the authority that they hold in underwriting the loan “in house”. This allows even the largest decision or exception to be made in an instant. Interest rates and fees tend to be in line with Mortgage Brokers with the exception of Mortgage Banks working on very small margins.
The biggest disadvantage of working with a Mortgage Banker is that the amount of commissions earned on a mortgage loan does not have to be fully disclosed by a Mortgage Banker. Whereas, all monies earned must be fully disclosed by a Mortgage Broker.
It is very important to know that regardless of whether you use a Mortgage Banker, Mortgage Broker or a Retail lender, the terms of the mortgage loan signed at closing will never change throughout the life of the loan.
A Retail Lender is a Bank, Credit Union or Savings and Loans Institution that lends money directly to consumers rather than other institutions. retail lenders are either federally or state chartered and are regulated by the proper authorities as such.
This biggest advantage of using a retail lender is that most banks are local and can be dealt with face to face. Their is also the personal relationship factor, that helps consumers feel more comfortable in dealing with a Bank or Credit Union that they have know for many years.
The biggest disadvantage in dealing with a Retail Lender is the interest rates. As discussed earlier, Mortgage Brokers and Mortgage Bankers deal in high volume and are rewarded with wholesale discounted rates.
As with any purchase or major decision, educating yourself on what is most beneficial to you as the consumer, is always highly recommended. A little bit of homework can save you a lot of money over the next 30 years!!!