Saturday, April 4, 2009

Mortgage Broker or Direct Lender?

There’s some debate on whether buyers of homes, condos and 2 – 4 unit income property should rely on a mortgage broker or a direct lender (bank, credit union, etc.) to get their loan. The New York Times in its coverage recommends shopping among a number of sources.

The comparison shopping will be simpler if you pick a specific kind of loan and look only for that, say a 30-year fixed-rate mortgage with no points. Because rates (and terms) can change daily, take an entire weekday and make all your calls. This sounds severe, but there’s no other decent way to compare apples to apples.

Start with a credit union or two. Hit a few community banks. Then try a few big national banks nearby. Give your investment firm a shout and the bank that has your checking account, since they may offer you a deal. And if you’re refinancing, don’t forget your current lender.

Next, call a few mortgage brokers recommended by people you trust. Talking to more than one isn’t a breach of etiquette. “You’re making the largest financial decision of your life,” said Mr. Savitt of the mortgage brokers’ association. “Why not check out what everybody has got?”

Mortgage brokers work for themselves, not for you. They do not provide a personal shopping service and may compare only a handful of lenders on your behalf. If you want to be sure you’re getting the best rate and the lowest costs, the only way to come close to succeeding is to hunt extensively on your own. [Source]

Much scrutiny has fallen on the mortgage industry as a whole. However, individual mortgage brokers can help consumers by getting excellent loans and providing a valuable service.

In the fast-shifting waters of loan underwriting and mortgage making, experience counts. Mortgage brokers who know the ins and outs of the business may succeed in getting a buyer a loan when a lesser mortgage broker or bank would fail.

Buyers can protect themselves by getting a “good-faith estimate” in writing from the mortgage broker which outlines the full extent of the costs. They can also make sure they are getting the best rates and terms by following the course suggested above -- comparing rates to other sources.

The ability of a mortgage broker to “perform” matters – if the loan is delayed (or not funded) the buyer’s deposit may be on the line. Banks are deluged with refinances and may not provide the service of a mortgage broker. The trifecta of a loan that has the best rates, best terms, and that closes on time may convince buyers that a mortgage broker is a valued professional.