When working with new clients, one of the first things real estate agents will ask is regarding financing for your new property. Recently, we have seen many buyers with cash offers- which is difficult to compete with for those using traditional financing. This being said it is very important to have a mortgage professional that gets you a competitive rate and can get the loan closed on time.
Choosing the right mortgage professional to help you with your home loan is not the easiest thing that someone can do. In fact, it can be incredibly difficult. There are so many options, so many places to get a mortgage, so many banks out there, credit unions, direct lenders, and mortgage brokers. The alternatives, alas, may not be so great either. “If you want to get ripped off, go to a broker, and if you want incompetency, go to a bank,” said a source who is mortgage broker himself.
One of the most important things to do is to first understand the similarities and difference between banks, direct lenders, and a mortgage brokers. At the end of the day, they can all get loans done, however, in our competitive San Diego real estate market it is imperative that your mortgage professional is knowledgeable, accessible, and can perform under tight deadlines.
A bank is pretty self-explanatory; you can get an auto loan through your bank, a credit card, a checking or savings account, and a home loan, among other things. A bank is generally a one-stop shop for all things financial, as long as they are simple and widely needed by the population at large. Obviously, most banks don’t allow you to trade stocks or invest in the bond market, so there are limitations.
Banks tend to muddy the waters when it comes to deciphering how they handle mortgages. That’s because some banks will service your home loan and own the rights to repayments for the life of the loan, whereas, some banks will sell your loan to a third-party after you sign the paperwork. This is not necessarily a bad thing at all, and the simple fact is, most financial institutions that give mortgages sell them to third parties. That said, some banks will both service some loans and sell others to third parties. So, the only thing that really makes a bank a bank, I suppose, are the regulations under which it operates and the products or services it offers.
Direct lenders are generally companies that underwrite a loan themselves. In practice, as far as you are concerned, there is not much of a difference between a direct lender and any other type of mortgage provider, even though many direct lenders say there are differences. What makes a direct lender different is the fact that they generally have a very large line of credit with another financial institution which allows them to write large checks for your mortgage. However, once the mortgages close, they will always sell the loan off to someone else to service the loan and collect payments on the loan.
Mortgage brokers are companies, or individuals, who have access to a variety of loan programs through various financial institutions. I actually worked as a mortgage broker for a period of time and we could access mortgages through all of the major banks, direct lenders, and any other lending institution nearby, with the exception of credit unions. The benefit of a mortgage broker is that, assuming you trust yours, he can do the shopping for you with all of the financial institutions he works with.
There are however, a couple of disadvantages of working with a mortgage broker. The first is that you must trust him or her; otherwise, he may find you a mortgage that puts more money in his pocket rather than looking out for your best interest. The other disadvantage is that although they have access to many different programs from many different lending institutions, they are a middle man, which means they will charge a fee for their service. There is nothing wrong with this inherently, in fact, the extra shopping a good mortgage broker can do for you very well may get you the best deal on your mortgage; it’s just important to keep in mind that they do charge a fee for their services.
Banks: Limited loan product offerings, longer turn times, higher rates…they do it all, however, they don’t specialize in mortgages.
Direct lenders: Specialize in vast array of mortgage products. Typically faster turn times, better rates, and better service.
Brokers: Work as a liaison between client and wholesale lender. May find you a slightly better rate, but they have much less control of the transaction because they are dealing with a third party.
Source: www.tweetface.net 7- 1012