Are you looking for home loans but do not know where to start?
Home loans are offered by many legit institutions such as bank, credit unions, brokers and mortgage lenders. While there are many reliable mortgage professionals who are working for trustworthy companies, there are also some who take advantage of homeowners who cheat their clients with millions of dollars.
We hope that after reading this article, you will be able to get the basic and useful tips in finding the top and the right mortgage lenders or brokers. But is there a difference between a mortgage broker and lender?
Mortgage Broker and Mortgage Lender: The Difference
A mortgage broker works on a client’s behalf with multiple banks to find the best mortgage lender for their loan needs. A broker is not a loan officer who works as an intermediary between the company and their client – the borrower. A loan officer is licensed and regulated to work in a financial institution. Mortgage broker gets paid by charging origination and/or broker fees that are due at the time of closing.
Mortgage broker can do a comparison shopping for potential borrowers to save time for the latter – and possibly saves money. Instead of spending of many hours applying for 5 various types of loans, the mortgage broker can shop around to find the best rates for you. There are some big banks that do not employ brokers but there are others that are affiliated with the local branches that has access to wide range of loan types.
Take note that brokers do not approve the loans but they find a mortgage lender who has the capability to approve the loan. Mortgage broker then adds his fee to the total rate and after this, the borrower gets the rate which is almost equal to the chosen retail rate.
Bottom line, as borrowers, you can always find a better deal on your own where you do not have to feel obligated to work with a mortgage broker. If you want to meet and work with a mortgage broker, it is good to know where your credit stands. This will give you that knowledge what loan types you can qualify.
On the other hand, mortgage lender specializes in working on mortgage loans and most of these lenders work with banks. Basically, they work with borrowers via one of their retail banking branches, or through a mortgage broker.
Many mortgage lenders have retail and wholesale departments. Retail departments extend loans to clients via bank branches or local offices, while wholesale departments offer loans through mortgage brokers. Wholesale mortgage interest rates that are offered to mortgage brokers are lesser compared to retail rates that are extended to general public.
Loan programs and qualifying criteria will differ from a lender to another, therefore, it is a challenging task as a borrower for home loans to shop around to find the best and the right lenders.
Choosing between a mortgage broker or lender
Choosing between the mortgage broker or lender should always depend on your preferences where you can save time. If you believe that you can do the research personally, then you may choose to work directly with a mortgage lender.
These modern times, it is not always vivid whether you are with a mortgage broker or lender. Do not hesitate to ask questions from mortgage company whether they are working as a lender or a broker. It is important to look for a loan officer or broker whom you can trust and feel safe.
Avoiding mortgage scams
Mortgage industry is not stable where rates may change every day. Having rates on your hand from a lender one day and another the next following day can provide you with the differences of the products instead of the differences among lenders.
There are lenders who advertise rates that are not authentic. You can see these rates on the web ads and some unsolicited e-mails. Therefore, it is important to choose your lender rather than allow them to choose you. And make sure you are choosing them wisely. There are some loan representatives that are unreliable and cannot be trustworthy. They usually make choices that benefit themselves or their institutions instead of their clients.
Part of the problem is that disclosure laws to shield customers from scams are not followed. As an example, the “Good Faith Estimate of Closing Costs” where the lender compels to give you three days of application. You read your application and it claims that the lender will have 1 point or 1 percent of the loan amount as Loan Origination Fee and another $1,000 in other charges. You also notice that the form involves fees that are more than the lender’s direct control like settlement fee and title insurance charges, first year home insurance premium, and County recording fees.
Since it may look too good to be true since the computation is lower compared to what you feel other lenders are charging. But the truth is that the lender is not officially tied to that estimate. He may alter it and decide to charge you two points rather than one point to double his earnings.
When you finally review the loan documents at closing, you may discover that you are being cheated. Well, they may expect you to close and they will tend to be unsympathetic if you suggest that you will need another thirty days to get another loan.
In short, when something like this occurs to you, you have already been misled and cheated from the start of the deal. You are kept in the dark during the process and from seeing the documents only until the last moment, when you feel that it is very late to do much about the transaction. You feel you are trapped.
To avoid this nightmare, ask questions that will lead you to know the person and the company you are dealing with.
Finding right and trustworthy mortgage professional
The most common questions between the potential borrowers and lenders, are: “what are your rates?” “what are your points?” “what are your fees?”
There are loan representative that lie to phone callers regarding their rate to attract them. Also, they may think that the upfront costs are not your major concern. Your aim is to get honest answers about loan options and interest rates. A question like, “How do I know I can trust you?” seems to be a good start and the most important one to ask.
We suggest to start with referrals from family and friends who have just gotten their loans and be sure to ask the right questions. Ask them how they were treated during the process, like
- Was the lender able to define the available loan options in a language that easily be understood?
- Was he/she able to lock in the rates that were promised?
- Was the loan representative or broker responsive and was able to handle problems quickly?
Was there any unexpected and hidden fees that were not completely disclosed during the initial discussions? If they still have the documents on their hands, review if the fees on the loan documents were the amount that you have originally agreed or disclosed during the initial Good Faith Estimate meeting.
You can also get referrals from licensed real estate agents. These experienced and licensed agents can refer you to lenders they have previously worked with successfully. But do not take the agent’s words simply as well. Still ask the same questions to know that the lender can be trusted and reliable. Ask about their experience.
Questions you can ask from potential lenders
- Can you provide me the HUD-1 closing statement, at least the latest 3 deals that you have completed?
- What are your loan programs?
- Can I see a Good Faith Estimate immediately?
- Can you estimate closing costs for my desired loan?
- Can you estimate and explain your fees and charges?
- How and when will you be able to earn your earning from my loan?
- Will you be able to get approval for my loan locally?
- How can you be certain that you can get this completed in time for closing?
Questions for potential mortgage brokers
- How will be able to get paid from this loan, commission or in points?
- How much will you be able to earn from the lender?
- Can you name some of your best lenders?
Bottom line, find the right mortgage lender where you will be able to develop confidence and trust that you will not be cheated in the process of getting home loans and other loans.