How to Find a Great Deal and Great Service When Mortgage Shopping
Editor’s note: The following was written by Fernando Paez, an experienced mortgage professional and writer who lives and works in California and is a regular contributor to Bills.com.
Many homebuyers do not know whether to call a bank or a mortgage broker when starting their mortgage shopping. Some mistrust mortgage brokers based on the bad press the mortgage industry in general, and brokers in particular, received due to the actions of a few who fudged facts on loan applications and encouraged appraisers to inflate property values. In response to these abuses, government and industry created stringent rules and regulations for mortgage brokers that protect consumers. Other homebuyers believe, mistakenly it turns out, they will find a better deal at a bank. In fact, the opposite is usually true.
Here are seven great reasons why borrowers and homeowners should avoid a national bank, a community bank, or a credit union when applying for a purchase money loan, a refinance, or a second mortgage.
Reason No. 1: Service
How will you be treated when you shop at a bank? Think back to the last time you called a bank's customer service department. Remember how they put you on hold and transferred you around? If that is how they treat their existing customers, how will they will treat a prospect? You will be assigned a number and from that moment on, you will be known to the bank’s mortgage staff by that number.
A licensed loan officer who works for you offers personalized, one-on-one service. Ideally, they will be very communicative and proactive, anticipating requests for documentation and other conditions. Loan officers do not get paid until they close a loan so they have a great incentive to fight to get your loan closed. The ideal loan officer will be a very friendly, positive person who will keep you constantly updated as to the status of your loan submission.
Reason No. 2: Experience
The latest Fannie Mae guidelines are very, very strict and underwriters put highly qualified borrowers through the wringer. Even if you have great credit, steady employment, satisfactory income, low LTV, and an acceptable property value, you will be asked to provide many documents before underwriters approve funding.
Knowing what the banks will ask for in advance is one of the big bonuses of using the services of an experienced loan officer. Anticipating a lender’s loan conditions can save hours of frustration. One of the most important things a good loan officer can do is assemble a comprehensive document package from the borrower before submitting the loan to a lender. When the underwriter gets a complete package, it eliminates time wasted going back and forth as the underwriter demands documents from the borrower, who must respond with the documents or risk losing the loan.
Reason No. 3: Creativity
Great loan officers know how to overcome lender obstacles creatively without losing their cool. Underwriters often respond to loan packages with conditions that defy reason and common sense. When nonsensical conditions are passed to borrowers without explanation, as is often the case in big banks, borrowers become confused and frustrated and oftentimes respond with documents the underwriter did not ask for.
Great loan officers are not rattled by strange condition requests and give careful attention to the request before planning a precise response to clear the condition. This may mean helping a borrower to write a letter of explanation, or calling a credit card company with the borrower to get an item cleared from a credit report. A great loan officer goes the extra mile for his client.
Reason No. 4: Rate Locks
A smart loan officer educates his or her customers on how rates are formulated. They do all they can to get the borrower the lowest rate available. The lowest rate is not always the rate you are quoted the day you first make contact with the lender. The most important rate is the rate you get when the loan closes and funds. These can be two very different things. For example, you make a call to your favorite lender and on the day you first call the rate is 5% so you ask the lender to lock it in for you. Since you have requested it, the bank employee will lock your rate on a 30-day lock.
The problem is that most banks take longer than 30 days to fund a typical loan. If you are locked in for 30 days, guess what? You will end up paying extension fees and that can reduce or negate any savings you may have had coming. The experienced loan officer lets the client know that they will lock the rate in for them when rates are favorable to the borrower and also when they can do a lock for a period of time that will cover the time it takes to underwrite and fund the loan. Sometimes it is best to wait until the appraisal comes in before locking a rate to give some cushion to the lock period.
Reason No. 5: Options
Brokers are paid on commission, generally speaking, and brokers usually have no preference which loan the borrower chooses. At banks, executives offer incentives to their loan officers to push certain loans. These loans are lucrative for the company, but may not benefit the borrower. Consumers are served best when they are presented with options in an objective manner.
Experienced brokers offer a variety of loan options tailored to the borrower, and explain the pros and cons of each. For some borrowers, a 15-year variable-rate loan may be a smarter choice than a standard 30-year fixed-rate loan. For others, the best choice is an adjustable rate mortgage (ARM). The options the loan officer presents should be based on their conversations with the borrower and the loan officer should know how to ask the right questions to find precisely what the best options are that provide the most benefit. These options should be presented with a Good Faith Estimate of closing costs and an explanation of the benefits to the borrower.
Reason No. 6: Lower Rates
A good broker shops lenders to find the best rates. Since brokers get wholesale rates from the big lenders, brokers can pass these savings to borrowers. Usually, the loan officer makes his money from the rebate paid by the lender to the broker for selling an interest rate that is higher than the “par” pricing rate. But the fact is that these rates are still much lower, on average, than a borrower can get when he goes directly to the lender. A borrower in a bank pays that bank’s retail rates, which are usually higher than wholesale rates.
Reason No. 7: Trust
New federal laws require all loan officers that work for brokers to be licensed with the Nationwide Mortgage Licensing System & Registry (NMLS). Because of the strict licensing requirements, all NMLS-licensed loan officers pass rigorous testing and background checks, including fingerprinting and criminal background checks. NMLS-licensed loan officers and brokers will have good financial history and no criminal convictions. This is very important since for the most part, you don’t otherwise know who you are trusting your most private financial information to when applying for a loan.
Ask your loan officer or broker for their NMLS unique identifier number, then check on the NMLS Web site to make sure they have a valid, current license. If they do, then you can cross that concern off your list of worries.
Using the services of an experienced, trustworthy, licensed loan officer employed by a mortgage broker offers benefits to homeowners seeking a mortgage refinance or new mortgage.
Paez has more than 12 years of experience helping homeowners and home buyers with real estate financing. Paez also has experience doing commercial loans and loans for developers. He writes extensively on real estate financing and other subjects for several blogs and Web sites.