A knowledgeable mortgage professional can help you set goals and secure a loan that is suited to your needs. Home loans are available from a number of institutions—from banks and credit unions to mortgage bankers and mortgage brokers. Within a few miles of almost everyone in America, there is a terrific mortgage professional working for a trustworthy company. That is not to say that all lenders and brokers are trustworthy. The newspapers are filled with story after story of companies that took advantage of homebuyers to the tune of billions of dollars. But don’t worry; by following the advice in this course, you will be able to find a lender or broker you can trust. As a first step, you should make sure that you understand the difference between a mortgage lender and a mortgage broker.
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Mortgage lenders such as Washington Mutual Inc., and Bank of America specialize in making mortgage loans. Many, though not all, are associated with banks. Mortgage lenders typically deal with borrowers through one of their retail banking branches or through a mortgage broker.
Most mortgage lenders have both retail and wholesale divisions. Retail divisions offer loans to borrowers through bank branches or local offices. Wholesale divisions offer loans through mortgage brokers. Wholesale mortgage interest rates offered to brokers are lower than the retail rates offered to the general public.
Loan programs and qualifying standards will vary from one lender to the next, and it can be challenging for a homebuyer to shop around among many lenders. Mortgage brokers have easy access to a large number of lenders and can use their knowledge of the many mortgage offerings to find a loan that matches the borrower’s profile and needs at a favorable rate. Brokers do not approve the loan themselves; they find a lender who will approve the loan. The broker then adds his fee to the wholesale rate, and in the end the borrower should get a rate that is about equal to the selected lender’s retail rate.
In today’s market it’s not always entirely clear if you are working with a mortgage lender or a broker. Don’t be afraid to ask your mortgage company if they act as a lender or as a broker. Regardless of which type of institution you deal with, it is important to find an individual loan officer or broker that you are happy with, and can trust.
Why is it Important to Choose the Right Mortgage Professional?
Like the stock market, the mortgage market is fluid, and rates change daily. Unfortunately, today’s paper is yesterday’s news. Getting rates from one lender on one day and another lender the next day could show disparities that are a product of the marketplace rather than differences between the lenders.
Some lenders even advertise rates that are not real. You will often see such rates in internet ads and unsolicited e-mails. You’re better off ignoring most ads. You should choose your lender, don’t let them choose you. And be sure that you choose carefully. Many of the loan representatives that you are likely to talk with are not trustworthy. If given the chance, they will make choices that benefit themselves or their employer rather than you.
Part of the problem is that disclosure laws designed to protect consumers are not enforced. Take the Good Faith Estimate of Closing Costs that your lender is required to give you within 3 days of application. Let’s say that you read yours and it says that the lender will make 1 point (1% of the loan amount) as a Loan Origination Fee and an additional $1,000 in other fees. The form also discloses fees that are beyond the lender’s direct control, such as settlement fee and title insurance fees, your first year home insurance premium, and County recording fees. You think it looks pretty good because the estimate is slightly lower than what you believe other lenders are charging, so you feel confident.
Guess what? The lender is not bound by that estimate. He can change it at will, deciding, perhaps, to charge you 2 points instead of one, doubling his income. When you finally see the loan documents at closing, you may find out that you are being cheated, but what can you do about it at that point? Everyone expects you to close, and it’s unlikely they will be sympathetic if you say, “I need another 30 days to get another loan.” You’ll have to close and pay the extra fees. The bottom line is that when something like this happens, you were purposely misled from the beginning, kept in the dark through the process, and shielded from viewing documents until the last moment, at which point it’s too late for you to do anything about it.
So how do you avoid this terrible situation? The answer is that you have to ask questions designed to tell you what kind of person and institution you are dealing with.
How Can I Find a Knowledgeable, Trustworthy Mortgage Professional?
If you could listen in on 100 phone conversations between borrowers and prospective lenders, you’d find that the most common questions are:
“What are your rates?”
“What are your points?”
“What are your fees?”
First of all, some loan representatives purposely lie to phone shoppers about rates in order to lure them in. Secondly, up-front costs should not be your main concern. Your goal is to get trustworthy answers about loan choices and interest rates. That can’t be done with phone calls to strangers. I’d be surprised if one person in 100 even asked, “How Do I Know I Can Trust You?” Yet this is the most important question of all. So how can you find out if your trust is well placed? Begin with referrals and then make sure you ask the right questions.
Get referrals from friends who have recently gotten loans. Ask these friends about how well they were treated. Ask the following questions:
- Did the lender describe the available loans in easily understood language?
- Did he/she lock in the rate that was promised?
- Were there any hidden or unexpected fees that were not fully disclosed in the initial meeting?If they still have the documents, see if the fees on the loan documents were the same as were originally disclosed on that initial Good Faith Estimate.
- Was the broker or banker responsive and able to deal with problems quickly?
Get referrals from real estate agents. Experienced agents can refer you to lenders they’ve worked with in the past. But don’t simply take the agent’s word as gold. Be sure to ask the same questions you’d ask if you were finding the lender on your own. When you speak with a lender, ask questions about their experience. Use the following list of questions to help you decide if you are satisfied with a lender’s knowledge, experience, professionalism, integrity, and commitment to service.
Questions to ask potential lenders
- Can you give me the HUD-1 closing statement on the last three deals you completed?
- What are your loan programs? Do you offer VA loans (for example)?
- Can I see a Good Faith Estimate right away?
- Could you estimate closing costs for my loan?
- Can you estimate and explain your fees?
- How and when will you earn your income from this loan?
- Will you get approval for my loan locally?
- Are you certain you can get this done in time for closing?
Additional questions for mortgage brokers
- How do you get paid, in points or commission?
- How much will you make on this loan from the lender?
- Name some of your top lenders.
By following these simple steps, you can develop a trusting relationship with your lender and move forward with confidence.
To learn more about buying a home and how the financing process works, read more from our experts by visiting our Mortgage Learning Center.