July 10th, 2018 6:57 PM by Jackie A. Graves, President
Shopping for a
mortgage can take time and patience, but you don’t have to go it alone. One way
to reduce the legwork and possibly get a better deal is to hire a mortgage
shop dozens of lenders to get you the best pricing, says Casey Fleming, author
of “The Loan Guide: How to Get the Best Possible Mortgage” and mortgage adviser
with C2 Financial Corp. in San Jose, California. Fleming says the rate
and terms he negotiates with some lenders are often better than what a consumer
could get by going directly to the same lender.
lender outsources the loan origination and sales function to a broker, they
offer to pay us what they would otherwise pay to cover their internal
operations for the same function,” Fleming says. “If we are willing to work for
less than that—and that is usually the case—then the consumer’s price through a
broker ends up being less than if they went directly to the lender.”
broker is legally required to disclose his compensation in writing — a banker
is not,” says Joe Parsons, senior loan adviser with Pinnacle Capital Mortgage
in Dublin, California, and author of the and author of the Mortgage Insider
federal rules must be licensed and cannot tie their pay to the interest rate
you receive from a lender. In other words, working with a broker doesn’t
ordinarily make your loan more expensive.
You could find more loan options.
another benefit of brokers. Using a mortgage broker can help you find the right
lender for your specific needs.
[lenders] may specialize in particular property types that others avoid. Some
may have more flexibility with credit scores or
down payment amounts than others,” says David Reiss, a law professor who
specializes in real estate and consumer financial services at Brooklyn Law
School in New York and the editor of REFinBlog.com.
A mortgage broker can save you time.
mortgage broker is essentially one-stop shopping, saving you time and
“If you are
turned down by a bank, you’re done — you have to walk away and begin again,”
Fleming says. “If you are turned down by one lender through a broker, the
broker can take your file to another lender.”
expertise and relationships can also simplify the process of getting a loan.
access to private lenders who can meet with you and assess whether you have the
collateral, says Mike Arman, a retired longtime mortgage broker in Oak
brokers can tap a large network of lenders to find you a good deal, but they
don’t work with every lender out there.
that even if you’re working with a mortgage broker, it can be worthwhile to
check out lenders on your own since no broker can work with every lender —
there are simply too many. He suggests starting with lenders you already have a
relationship with, and reach out to big banks, small banks, online lenders and
“A broker may
claim that he offers more choices than a banker because he works with many
lenders,” Parsons says. “In reality, most lenders offer pricing on their loans
that is very similar.” Although, he notes, a broker may have some niche lenders
available for unusual circumstances.
downside to working with a broker is it can sometimes take longer to close your
loan, Fleming says. Banks do their own loan processing and underwriting
in-house, and generally have fewer overlays (additional restrictions on
lending guidelines). That means banks may be a little more likely to approve a
loan that just barely meets guidelines, he says.
broker doesn’t have any power over deciding the terms, borrowing requirements
or pricing of your loan. Once the loan is turned over to the lender, the broker
is out of the picture.
3 questions to ask a mortgage
Here are four
questions to ask a prospective mortgage broker:
Can I get your references?
found the broker through a reference from a friend, relative or co-worker. But
if you found the broker another way, it’s smart to check on references.
Ask for the
names and contact information for the most recent two or three customers who
closed loans with the broker. Then call and ask what their experience was like.
Did the broker treat them fairly? Did the loan estimate have accurate
information? Were there any issues closing the loan? Did the closing disclosure
have roughly the same costs as the loan estimate?
ask if they would do business with the broker again.
How long have you been in
How long is
long enough? Choose a broker who has been in the industry for at least three
years (but preferably more). Ask how much experience the broker has with
specific loan types you might be interested in such as FHA or VA loans, for
example. You can check to see if they hold the proper licensing to be a
mortgage broker in your state through the Nationwide
Mortgage Licensing System and Registry.
How are you paid?
brokers get paid in either one of two main ways: upfront at closing by the
borrower, or after the transaction closes by the lender. The broker’s fee is a small
percentage of the loan amount, usually between 1-2 percent.
How do you handle rate locks?
commit to working with a specific lender, you can request a rate lock. This
ensures that you receive the same the interest rate you’re quoted for a set
timeframe, regardless if rates go up or down. A typical rate lock period lasts
up to 30 or 60 days, or you can pay more money to extend the rate
lock. Also, you can add a float-down clause, if your lender permits
it, within a rate lock that guarantees you a lower rate if rates fall during
your lock period.
borrowers choose to “float” their rate until closing. This can be a risky move
if rates move up, but it can save you substantially if they go down before you
close on your loan.
broker for a loan commitment letter from the lender. It should have the
lender’s name and specify the interest rate and points, the date the rate was
locked, and when the lock expires.
The bottom line
As with any
product or service, shopping around for a mortgage is always a good idea that
can save you big bucks. It’s worth speaking to a few brokers before choosing
one so you feel confident in who you’re working with.
before committing to a loan with a banker or a broker, compare loan estimates,
ask questions about any fees you don’t understand, and don’t be afraid to
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