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Most people buying a new home need a mortgage loan to assist with the purchase; there are some options regarding where to go for assistance. It is common for the loyal customer to contact his or her personal banking institution for assistance; however, it is no secret that the traditional banks for one reason or another reject a large percentage of their loyal customers when it comes to extending any sort of credit.
Loan representatives at the bank, credit union or direct lending mortgage company have a variety of loan programs but the loans are extended from the same single source. If for instance your credit or debt to income ratio is not acceptable, it is common for all programs to be rejected with that same single lending source.
Loan Brokers
Loan brokers are freelance agents scouting both clients and mortgage companies to match them together, assist the customer and earn a fee for the successful transaction. Mortgage loan brokers work with multiple lending institutions who provide different programs to choose from.
The broker will evaluate each applicant’s credit, debit to income ratio, other income and obligations as well as situations that may affect the client’s eligibility for a specific program; eventually matching the client to the best program. The mortgage broker will earn a fee which may be paid by the applicant, by the lending institution or perhaps a little of both.
It is ironic that leading up to the 2008 real estate melt down, many of the mortgages companies that advertised easy loans were mortgage brokers. Without their existence, obtaining loans was substantially more difficult thus slowing down the real estate sales process and reducing the chances for many to buy homes that eventually ended up in foreclosure as was so evident after 2008. When it is easy to borrow, more people buy homes thus driving up the price of real estate; this is a normal and cyclical process but should not be accelerated as it was leading up to 2008.
Banks and Mortgage Brokers – Is there a difference?
A mortgage broker may find a lender in another part of the country. A bank may not have a local office where a representative can meet with you.
Local banks may be helpful if the applicant has a strong credit profile and qualification is not a concern. The bank staff generally will understand the specifics of local properties thus speeding up the closing process and avoiding unnecessary delays.
Mortgage loan brokers will often find a lender who will make loans that a bank refuses; this is helpful for those with credit issues, high debt to income ratio or short employment history.
Be sure to seek the best loan terms and don’t be afraid to ask your real estate agent for referrals that may both offer you a competitive rate and avoid delays in the process.
Credit Reports
All the major credit reporting agencies will allow customers to obtain a copy of their Credit Report at least once per year; obtaining a copy of your own credit report does not affect your credit score. If you simply apply for loans with different organizations, each will pull a credit report thereby reporting a Credit Inquiry on your profile and reducing your FICO score.
It would be advantageous to contact a prospective lender with all your details in hand and require their cursory advice and suggestions prior to simply allowing them to take a full application and running your credit which may ultimately end with a rejection or definitely at least an additional credit inquiry which will have a negative impact on your credit.
How Should a Customer Proceed?
A prospective homeowner should approach the process cautiously and with skepticism; it is recommended to contact two or three local banks as well as a couple of mortgage brokers inquiring about rates and fees. Naturally, each party will be eager to accept an application and begin the process prior to answering questions; the bitter truth is that they will be protected by disclosure statements that a customer may sign without understanding – haste is not in good taste! If a lender does not answer your questions, simply delete that contact and move on to the next.
Caution and Reading the Fine Print is advised:
State Laws are changing frequently which include the implementation of national licensing requirements for mortgage brokers. Laws are different in each State. You may be asked to sign a Mortgage Loan Origination Agreement; read it thoroughly. It will most likely cover three points:
- Nature of Relationship. The mortgage broker may or may not represent you. In addition, the mortgage broker might not guarantee you will receive the lowest price or best terms available in the marketplace because mortgage brokers are limited in scope by the number of lenders each represents.
- Services Provided. This section will detail some, not all, of the services a mortgage broker will provide.
- Compensation. The fine print will explain how a mortgage broker is paid. If the mortgage broker is paid directly by the lender, you might indirectly pay this fee indirectly by paying a higher interest rate, but it should be explained to you.
