Finding a Mortgage for Your New Home
Working With Banks vs Mortgage Brokers
If you're buying a home, chances are you'll need a mortgage, but did you know there are big differences between mortgage brokers and bank loan officers?
Bank Loan Officers
The loan officers at a bank, credit union or other lending institution are employees who work to sell and process mortgages and other loans originated by their employer. They often have a wide variety of loans types to draw from, but all loans originate from one lending institution.
The loan officer takes your application and works to find a home loan that suits your needs. If your personal credit is approved, the officer moves forward to process the purchase.
Mortgage brokers are professionals who are paid a fee to bring together lenders and borrowers. They usually work with dozens or even hundreds of lenders, not as employees, but as freelance agents.
Think of mortgage brokers as scouts. They find and evaluate home buyers, analyzing each person's credit situation to determine which lender is the best fit for that person's needs. The broker submits the home buyer's application to one or more lenders in order to sell it and works with the chosen lender until the loan closes. A good mortgage broker can find a lender for just about any type of credit.
The mortgage broker working to secure your loan is earning a fee for the transaction and the better deal they achieve for a lender, the more they are paid. Don't be too anxious to disclose to a broker the interest rate you are willing to accept--let them tell you what terms they can secure. Shop around to make sure the terms are reasonable. Many of the mortgages companies that advertise online are mortgage brokers.
The Difference It Makes
A local or online mortgage broker may find you a lender in another part of the country. An online bank might not have a local office where employees can help you one-on-one.
Some out of town lenders don't understand the types of heating systems used in specific areas, they aren't familiar with private septic systems, and they don't immediately understand common classifications and terms used by local appraisers.
Those are just a few examples of problems I've seen that caused significant slow-downs in loans made by an out-of-town lender working with a mortgage broker.
Using a local bank can sometimes be a plus. Their staff generally understand the specifics of local properties, but a distant lender who doesn't will delay closing until questions are answered.
Mortgage brokers can often find a lender who will make loans that a bank refuses -- problem credit is one example. Getting a bad credit mortgage is tricky and can be very costly if you are inexperienced or don't know your legal rights. Unfortunately, the industry is ripe with those who will try to take advantage.
Loans for unique or commercial properties might be easier to secure through a mortgage broker. Not every bank offers these types of mortgages.
Make your choice of a lender based on the best loan terms you can find. Ask questions about the expected time-frame. Ask your real estate agent friends who have recently bought a home for lender and broker referrals.
Pull Your Own Credit Reports
Order your credit reports and scores from all three major credit reporting agencies before you visit a bank or broker. Personal copies of current reports should provide enough details for them to give you an opinion of the types of loans they can offer you.
The lender you decide to use will access your credit files, but taking your personal copies to the initial interview avoids multiple credit pulls that can lower your scores. Requesting your own credit reports does not affect your scores.