Who To Call for a Mortgage
It’s no secret that the internet continues to bring education and knowledge to the forefront. In today’s classroom, students type in a few key words and instantly have hundreds if not thousands of possible solutions that are a mouse click away. They are not concerned with library day to learn about the Dewy Decimal System and a card catalog. Today, everyone is a subject matter expert regardless of the subject matter. If we all had a dollar for every time we heard the words, “I saw it on YouTube,” or, “I Googled It,” well, we probably wouldn’t need to be true subject matter experts in our respective fields.
One question that we are asked more often than you’d think is why people should use a mortgage broker rather than going to their local bank or credit union. Now, you could very easily google this topic, and it will point you to a wealth of information to answer your question. You’ll probably even find a link to a YouTube video or two. However, you’re not going to necessarily have all the details. So, who is better, a mortgage broker or your local bank?
Working with a mortgage broker vs. going to your local bank or credit union is like using professional contractor vs. painting the house yourself. In the end you may have gone through less hassle by working with a professional, but there is a cost associated with convenience.
Banks, online mortgage lenders, specialty lenders, and credit unions are all direct retail lenders. They are lending you the money directly to purchase or refinance your home. When you choose this route, you are choosing to paint the house yourself. Since the bank is lending you their money, they’re going to offer you their loan, their terms. They will not check with other banks to see if there may be a better loan program out there to better suit your needs. You yourself are responsible for that piece. You’ll be keeping track of rates and fees that you are quoted. How involved this process becomes will be determined by how many banks or mortgage lenders you contact. In the end, you may save some money, but you’re going to be doing all the work.
Mortgage brokers are not direct retail lenders. They communicate with the direct retail lenders on a wholesale level. Mortgage brokers have approved partnerships with multiple lending institutions. This enables them to find the best loan program available to meet a borrower’s specific needs. Once the mortgage broker has a short consultation with a prospective borrower, they can take the information that they’ve collected (purchase or a refinance, cash-out or rate and term), and find the best loan program available. The broker may then come back with more than one option. At that point, there will be a follow-up conversation to go over the particulars, and to determine which loan best suits the needs of the borrower. Once a decision is made by the borrower, the broker will facilitate the transaction all the way through the closing.
Brokers – The Pros
There are several benefits for a borrower to reap when using a mortgage broker. Granted, a borrower can match some of these benefits by finding a mortgage lender on their own. Mind you this can be very time-consuming, and a borrower will not have access to some of the resources that are available to brokers. Having said that, let’s look at the Top Pros of using a mortgage broker.
- Early Assistance – Borrowers can start working with a mortgage broker extremely early in their homebuying or refinancing process. Now, we can’t speak for every mortgage broker out there, but in our offices, we offer a free mortgage consultation. They typically last about 30 minutes depending on the borrower’s situation and their needs. The consultation gives us the opportunity to better understand what our borrowers are trying to accomplish. We discuss needed documentation and next steps. If it is a purchase transaction, we will discuss obtaining a pre-approval letter.
- Multiple Loan Programs – Mortgage brokers have access to multiple loan programs. For borrowers who are looking for a loan that is non-conforming, whether it be for purchasing or refinancing, a mortgage broker will have access to these types of loans. In addition, a mortgage broker will have access to the same bank loan programs. Since a mortgage broker is partnered with lenders on a wholesale level, in most cases, this results in a better interest rate, be it conforming (bank programs) or non-conforming loans.
- Detailed Analysis – If a borrower has a unique set of circumstances such as being self-employed, a mortgage broker may assist in finding a lender who offers loan programs that work off a 1099 or off a Profit and Loss statement. Mortgage brokers will help a borrower to compare different options that are available one-on-one. They will help the borrower make an informed decision as to which direction to take.
- Extended Availability & Convenience – Obtaining a mortgage to purchase or refinance an existing mortgage is a time-consuming project. From the initial application and loan processing to underwriting and finally closing, there is a lot of back-and-forth with requests for one document or another. Mortgage brokers typically handle the paperwork and deal with the lender’s underwriters on your behalf. A solid mortgage broker will save you time and stress by being there with you every step of the way.
Banks – The Pros
For some borrowers, working with a mortgage broker isn’t exactly their cup of tea. For those that are comfortable talking to processors and in some cases, underwriters, then working with a direct retail lender may be the road to travel. Here are the Top Pros of working with your local bank.
- Direct Contact – When you go through your bank for a mortgage, the loan officer you are working with is a bank employee. The biggest plus to this is that if there are any issues or concerns, your loan officer can walk from one end of the bank to the other to get the answers to the questions. A mortgage broker can do the same thing; however, he would need to either send an email and/or make a phone call.
- Potentially Lower Costs – Yes, it’s true, mortgage brokers do not work for free. Most mortgage brokers charge a few of 1% to 2% of the loan amount. This fee is added to the closing costs which would be brought to the table if it were a purchase loan, or, rolled into the loan if it were a refinance. So, it is also true that a bank’s fees may be less in some cases.
In The End
There are pros to working with both mortgage brokers as well as banks. We could go on and dive deeper into ways to calculate offsetting closing costs, whether to pay points (or not) etc., but you’ll have to wait for the next article for that information. What matters most in the end is that you, the borrower, are comfortable with your choice.