Selecting A Lender
There are two different types of lenders. There is a direct endorsement lender and a broker. Below is a broad definition of each. Let's look at the different types of lenders:
An independent business professional who provides a service to hunt and seek various direct lenders in order to acquire approval of financing for your specific transaction. Once the direct lender is identified, the mortgage broker becomes a conduit flow of information and paper work. For the service they perform they either charge the borrower a broker fee and/or get paid a yield spread premium from the direct lender. Upon completion of the settlement the mortgage broker relationship with this transaction is terminated.
Mostly consist of major national/regional banks and or mortgage banking companies that have direct internal access to funding. In addition each of these companies will also provide full mortgage servicing and numerous other consumer related services. They will also be able to give you a complete breakdown of costs for you loan.
Most agents have lenders that they work with on a regular basis. We all have a favorite. The question is to you the consumer, what do we get from suggesting a lender? The biggest and the only thing that we can get is service. When we call a lender that we work with we will get a return phone call! Since I feel that education is the biggest part of this transaction I have a lenders that I like to work with because we have the same business beliefs. Another reason is that a lender that works often with an agent may be more responsive to their phone calls. He/she has more to lose if he is not. It all comes down to service and information. I always tell my clients that they need to get the same feeling of trust with the lender just as they have with me. And understand the difference between the broker and direct lenders
When you go to write an offer on a property the listing agents job is to find out as much information as possible about your offer and your ability to purchase. With a local lender and your permission that agent can call the lender and get a comfort level to help the seller make an informed decision. If you were to chose an internet lender it is hard for anyone to get in touch with them and get any questions answered. Especially with the mortgage crisis of late with many of the lenders trying to regroup and stay in business. Would you believe that there have been buyers and sellers sitting at the closing table and but the lender cannot fund the loan? It has happened.
Also is your lender giving you full disclosure of your interest rates and total costs? For example were you aware that the interest rates that you read in the paper are an average of all the rates that that particular company has given for that particular week. In the real world the interest rate that you get will depend on your credit score, the amount of money you borrow, how much money you put down and what kind of loan. There are many variables in reality. Another thing to understand is that interest rates can change through out each day and the interest rate you get has to be locked in and this cannot be done until you have a contract on a property. Now there will not normally be a big difference from day to day because you can get the same rate it just may cost you a little more to get it today than it did yesterday. Do you see the importance of learning about this ahead of time?
Lets look at interest rates in the real world. If you were borrowing $350,000 and your estimated interest rate was 6.5% and by the time you had a contract and could lock in your loan the interest rates went to 7% your payment would go up approximately $116.00. This is not an insignificant amount but in the whole picture after your tax savings that difference would be less than $100 a month. Still not insignificant but in planning if the market is at 6.5% and you planned on 7% with all you estimates now it is not so bad.
Another person who can help you understand the “money” part of this is a tax person. From the first time home buyer who is stretching to make your first mortgage payment to the veteran home buyer who is also stretching to make their new mortgage payment to the person who is moving into the adult community, each and every one has a different set of tax circumstances. A small investment with a qualified tax person will help you understand all the benefits home ownership will afford you and the best use of your money today and for the future.