There was a time when most homebuyers obtained mortgage loans through their banks or credit unions. Today, however, there are a number of additional home-financing providers. Which one is right for you? Let’s take a look at the options.
Banks, mortgage banks and nonbank lenders all are direct lenders. That is, employees review your application and make the decision to lend you money. Typically, the institution will sell your loan on the secondary market.
Benefits of a direct lender:
■ Reliability: You probably know and trust the institution. It is regulated by state and federal agencies and likely has strong ties with your community.
■ One-stop shopping: You deal directly with the source of your loan.
■ Savings: As the loan originator, an institution may save you money in the loan process.
■ Speed: A direct lender also may process your loan faster than other providers.
Risks of a direct lender:
■ Limited choice: Lenders offer only their own programs. To comparison shop, you will need to speak with several lenders.
A mortgage broker is a middleman who may represent the mortgage loan products of many lenders. The broker’s goal is to match you with the loan product that best meets your needs at the best price. Once your loan is approved, you will usually deal directly with the loan originator or their mortgage service provider.
Benefits of a mortgage broker:
■ Variety: By shopping across a range of different programs and lenders, a mortgage broker may find you a better fit than a direct lender could.
■ Qualifying: A mortgage broker can best steer you to the national or regional lenders that are most likely to accept your application based on your financial and personal information.
■ Savings: You may get a more favorable loan rate.
■ Speed: A broker saves you time shopping for a loan.
Risks of a mortgage broker:
■ Hidden costs: Some mortgage brokers attempt to increase their profit by writing hidden costs into your loan. Best hedge: Know the loan process and ask questions.
Most financial institutions offer a limited menu of loan products, just as mortgage banks do. They typically hold mortgages in their portfolios or sell them on the secondary market
Home builders and real estate agencies
■ Many large home builders and real estate agencies now own an in-house mortgage company to make it easier to buy their properties. These affiliated companies may operate as a mortgage banker or broker.
Which lender is right for you?
Depending on your credit history and circumstances, you may benefit by using one source of mortgage loans over another.
What kind of borrower you are can determine what lender is best for you.
■ Excellent credit, easy access to financial documents, longtime employee of one company — Internet lender, bank or mortgage bank.
■ Self-employed borrower, don’t want to share data about income or assets with mortgage provider — mortgage broker.
■ Repeat home shopper, rate-and-term refinance customer, financially savvy — internet lender.
■ ARM shopper, relationship customer with many accounts at one institution — bank, thrift.
■ Convenience shopper, wants easiest loan to get even if it costs more — homebuilder or real estate agency lender.
Tips for working with lenders
■ Get recommendations: Ask friends and family members for suggestions, especially if they’ve recently obtained a loan.
■ Check credentials: Mortgage bankers are regulated by either your state’s department of banking or division of real estate. Check with the agency to see if a lender is in good professional standing. Mortgage brokers may or may not be state-regulated. If not, check with the local chapter of the National Association of Mortgage Brokers or the Better Business Bureau to see if their record is clean. The Library of Congress has a good index of state and local government websites.
■ Do your homework: Learn about typical mortgages and ask questions when something looks amiss; a broker may be trying to pad closing costs or other fees at your expense.
■ Take care online: There are plenty of attractive deals online, but first make sure you’re dealing with a reliable broker or lender.
■ Extra care during peak season: Unscrupulous lenders and brokers are more apt to quote you bogus rates or slip in extra costs during peak homebuying season, in hopes you won’t notice.