Advantages Of Different Types Of Lenders
One of the most difficult part of mortgage shopping is when you have to compare loans of different lenders. It is important to remember that mortgage packages consist of more than just principal and interest rates. Included in the package are also quoted rates, points and closing costs.
Points
What are these points exactly? Points are an up-front fee that is paid to the lender at closing time. A single point is equivalent to one percent of the loan amount. These points are paid, to decrease or raise the rate on the loan that you take out. Majority of lenders will allow you to pick from a number of different of rate and point combinations for the same loan product that you have taken out. When you compare rates of different lenders you should also make sure that you compare also the associated points.
Included in the loan you also have closing costs that ususally consist of loan related fees such as title and escrow charges as well as government recording and transfer charges. The closing costs can increase the actual amount of your loan. When you're comparing lenders remember to compare all the loan related fees such as the fees which lenders charge to process, approve and make the mortgage loan because all the other fees are typically independent of the lender anyway.
Compare Loan Aspects
Additionally when you compare loans of different lenders you may need to thoroughly research and compare all loan aspects such as mortgage insurance payments, if there are credit and cash reserve requirements or qualifying ratios. You should also note if there are any prepayment penalties as well as the availability and terms of loan conversion options. For example, check what is the rate reduction option on your loan or if there's an option to convert it to adjustable rate mortgage or from ARM to a fixed-rate mortgage.
Also, for each loan that you are comparing try to find out if it has a lock-in period. A lock-in period is the time during which the interest rate and points quoted to you will be guaranteed. For example, you can have a 30, 45 or 60-day lock-in period. A number of lenders will also offer you a lock-in that lasts a short period of time -- 15 days or so. Loans with longer lock-in periods are usually more expensive; the lock-in period however should be long enough to let the settlement of the payment before the lock-in period expires.
Most important is to remember that you compare the interest rates on the same day since the rates do change daily or even few times during a day.
When you compare different loans amongst different lenders you should look at the products (loan packages) that are similar in type for example, 15 year, fixed. There's no point of comparing different types of loans because the rules do not apply.
Cautions
As with anything else in Real Estate, or for that matter any other business, it's a good idea to remain cautious about self-advertising. Naturally, your loan officer will recommend his or her own financial institution as the best place to apply for a loan and whilst his / her recommendation may be honest there's no way to confirm that. The loan officer has many different jobs, the main one is to act as your representative and communicate with the the lender he works for or the financial institutions he brokers loans to. Your loan officer should provide you with references and you need to be confident that this person works ethically and is a dependable professional.
Of course, each type of lender will have their weaknesses and strengths but there are number of other aspects that influence if your lender is a good one or if there's a reason to doubt his / her professionalism. Depending on a loan officer, the support staff as well as the branch or office the loan is awarded from, the quality of the lender will differ. There are a number of different lenders that you should consider before deciding on a loan that will suit your needs best:
Portfolio lenders basically promote their own porfolio loans that, most of the time, are adjustable rate loans. Portfolio lenders pay more compensation to the loan officers for creating a portfolio product rather than for creating a fixed rate loan. They are not as competitive as mortgage bankers or brokers in the fixed rate loan market.
It is easier to be approved for a portfolio loan, so even if you don't really qualify for a fixed rate loan you may be able to get a loan from a portfolio lender; additionally, if you're unable to get a loarger loan from a fixed rate lender you should be able to qualify for a larger loan from a portfolio lender.
Because meeting of standaridized underwriting guidelines of a mortgage banker are not as important to portfolio lenders they are more accessible lenders. If it happens that your application is denied than you can start over by applying to another portfolio lender with a new company.
Mortgage bankers have a number of strenghts, one of the biggest ones being the fact that they are often a brand name. Additionally, they are good at advertising and offering a number of special different first-time buyer offers that have low interest rates and cost less than what they should in accordance to the current market rate. These types of offers are available to people who have never owned a house (or haven't owned in in the past three years) and are within certain income specification bracket. One of the weaknesses of mortgage bankers is that they are too broad and they act according to only very standardized procedures. Unlike porfolio lenders who can almost 'customize' your loan for you, mortgage bankers simply have to follow the rules of the companies they work for and therefore are less likely to make exception. Mortgage bankers are good if your buying a development that has not yet been approved; they will be helpful in getting it approved faster than other lenders.
Many mortgage bankers will allow their loan officers to broker the loan to another institution If your loan is declined for some reason. Unfortunately since your loan officer may be used to promoting only his companys product, he or she may not be aware where you should submit your loan.
Banks and savings & loans basically hold their strength in the brand name. Additionally they work as your mortgage banker and your portfolio lender or both and do share strengths and weaknesses of both.
Mortgage brokers can research all the wholesale lenders and be able to decide which lender has the best rate much easier than you can do on your own. The brokers also learn the unique strengths of specific wholesale lenders and can choose the lender for you that may be ideal for your specific situation. Your mortgage broker will also work as an advisor, for example letting you know whether your loan should be submitted to a portfolio lender or a mortgage banker. Another advantage of working with a mortgage broker is that, if a loan gets refused, he or she can simply repackage the loan and submit it to another wholesale lender. One disadvantage is that mortgage brokers sometimes attract the worst loan officers, too. Sometimes they may charge you more on your loan that would then erase the ability of the mortgage broker being able to look for the lowest rate. Unfortunately you can only get access to the wholesale divisions of mortgage bankers and portfolio lenders if you go through a broker. When your realtor or real estate agent suggest a lender, make sure to talk to that lender. Since they have regular dealings with their lenders, realtors and agents have high expectations of their reliabilit; reliability is one of the most important aspect of real estate transaction.
One advantage is that because of a recent trend in mortgage lending some estate companies and builders also own their own mortgage companies and create something called "controlled business arrangements". Naturally they do this to increase their profitability. Such mortgage brokers become used to having what is essentially called a captured market and won't necessarily offer you the lowest rates or costs.
A number of real estate companies also offer different types of incentives to their agents and realtors so that they recommend their company-owned mortgage and escrow companies or lenders with whom they have controlled business arrangement.
When you deal with one of these lenders is not really that bad because the real estate company will have more ability to influence matters when they own the company and have controlled business relationship. They probably won't be able to influence the underwriting decision, but they can handle certain problems and speed up the whole process
There are certain intricacies in dealing with new houses so when you use a loan officer who usually deals with refinances or resale home loans, he may not even be aware of how different it is to close a mortgage on a new house and this may create some problems. It's best if you know if there is any kind of ownership relationship or controlled business arrangement between the real estate and the lender, so be sure to ask your agent. Remember not to disqualify a connected lender, but be sure to check throughouly on getting the best interest rate and the lowest costs when taking out a loan.
