Mortgage Broker vs. Your Local Bank

Mortgage Broker vs. Your Local Bank - There are several advantages to choosing a Mortgage Broker for your real estate financing needs rather than a local bank. One advantage is expertise. If you needed brain surgery, would go to a general surgeon or an expert who specializes in brain surgery? Mortgage brokers are professionals who specialize in one area of the banking / lending industry, real estate financing. We have access to more lenders, more loan programs, different types of loans, and specialty “niche” products than a local bank. In most cases your local bank is probably a large regional or national bank with many branches and services available. You may get passed along to another department, or get lost in a phone system before you ever talk to a loan officer. While to your mortgage broker you are more than just a number, customer service is important to any mortgage broker. You generally only deal with one person who will help you through the process. Maybe the biggest advantage and least recognized by consumers is that mortgage brokers deal in wholesale rates, while your bank deals in retail rates. Not only can mortgage brokers “shop” your scenario around for you but they are doing it in wholesale side of the industry.

You may have heard of the phrase: "When banks compete, you win." This is true. By having a mortgage broker work with multiple lenders on your behalf, you are getting the lowest rates and you have a professional mortgage consultant to ask questions of.

In days past, borrowers felt comfortable submitting their loans to a local bank, feeling that doing business in the local community would be an advantage. These days, very little lending is done at the local level. The representatives at the local branch do nothing more than take the intial application (if that) and then send the loan to an originaton center, sometimes out of town or even out of state.

By contrast, a local mortgage broker is often more closely tied to the community and works on your loan from begining to end.

If you are undecided between a local bank and a mortgage broker, ask yourself if you are the type that dislike comparative shopping, or a procrastinator, or in a unique financial situation that is not apprehensible to most banks, a knowledgeable and competent broker may be a of great service. Even if you intend to shop for a mortgage on your own, you should always compare what mortgage brokers can offer.

Wholesale rate is the rate banks offer through mortgage brokers. The interest rate and points obtained through the use of a broker may be lower than one would get by going to a bank directly. Since brokers do most of the loan processing and pick up all the marketing costs, banks reason that they can afford to offer a lower rate as a way of passing to brokers what they save on overhead costs and advertisement expenses.

The uniqueness of loan programs available to Mortgage Brokers can save you thousands of dollars over a bank. Some of these programs would be for situations like low FICO scores, high DTI (debt to income ratios) and other detrimental factors affecting your credit and throwing you into a non-conforming loan scenario.

Your local bank is not as likely to take comepensating factors into consideration, when approving you for a loan. The Mortgage Broker, has several lenders that are willing to consider a loan applicant, even if they do have low FICO scores, or a high debt to income ratio. Some compensating factors that your mortgage broker may use to qualify you for a loan include: length of time at current residence (without having late payments), liquid assets, low LTV (Loan-to-Value), length at current job, and low payment shock (mortage payment not increasing drastically over your current rent payment). The mortgage broker can also use a good letter of explanation (LOX) to help an underwriter overlook any negative factors with your loan scenario. This combined with the mortgage broker having more programs available to them, could make the difference of being in your dream home, or not!

A mortgage broker often has a larger network of mortgage lenders so they can often find you the best deal. The more product knowledge you have when shopping for a mortgage, the more power you have to get the best deal.

It is important to understand the difference between mortgage lenders and mortgage brokers. As a rule, mortgage brokers don't make a decision whether to extend you a loan, and they don't actually makes the loan. They work as intermediaries between borrowers and lending sources. However this fact does not mean that you are paying a higher rate. Since mortgage brokers obtain their funds from a variety of sources, they can even save you money by shopping your loan.

Help with selling a house - If you are selling your home, with or without a real estate agent, you should consider consulting a mortgage professional to assist you with things.

The mortgage professional has the tools necessary to pre-qualify borrowers. This way, you won't have people who are interested in purchasing your home, but don't actually have the funds of doing so. In the long run, the mortgage professional can save you a lot of time and possibly agony.

Many mortgage professionals will offer marketing assistance to homeowners who are selling their house without a Realtor. They do this in exchange for the sellers turning over the contact information on people who are inquiring about the home.

Poor Credit Loans - Poor credit loans are loans where the borrower has had some problems with their credit and cant qualify for a conforming loan.

Do not stay in a poor credit loan for a long period of time. As time goes by, with better repayment behavior, you can refinance into a loan with better terms in a relatively short amount of time. Contact a mortgage professional every 6 months to have him/her evaluate your credit scores and your current mortgage situation.

To offset the poor credit lenders require a higher intrest rate than on a conforming loans.

There are loan programs available specifically for borrowers with poor credit, but there are often extreme limitations that may keep the borrower from being able to qualify. For example, with a 475 fico score, you may be able to qualify for a loan, but only for 70% of the value of the home. This would mean that you would have to come up with a 30% down payment if you are purchasing the home. For most borrowers, this would prevent them from being able to buy the home.

Poor Credit Loans are available to consumers that fit into a fico score bracket starting as low as 475. Lenders view mortgage history and consumer credit as a part of the approval process for most poor credit loan situations. LTV or (Loan to Value) is also a factor in the approval process of a poor credit loan. Lending institutions limit the LTV to a 70% quailfying percentage, your appraised value or equity position in your home determines the LTV. Good mortgage history, consumer credit, and LTV are the 3 keys in the loan process which will help you qualify for a refinance or purchase of home.

Lenders charge more points and higher interest rates to those with poor credit. Loans to borrowers with poor credit carry far more risk and lenders deserve compensation for this risk. Borrowers with good credit should not let themselves enter into a loan agreement where they pay points and rates based on a bad credit loan. One national company recently filed bankruptcy to protect themselves from litigation on fraudulent loan practices.

Lenders make a clear distinction between Poor Credit profile and No Credit profile. No Credit merely means the borrower has not had a history of using credit. A person with Poor Credit/Bad Credit profile has demonstrated a pattern of mishandling credit.

New 2006 Conforming Loan Limits - For the year 2006, Conforming loan limits look like this:

For conventional mortgages (those which may be purchased from local lenders by national organizations such as Fannie Mae and Freddie Mac), the loan limits for owner-occupied properties are:

* One-unit properties: $417,000

* Two-unit properties: $533,850

* Three-unit properties: $645,300

* Four-unit properties: $801,950

* For properties in Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the loan limits are 50 percent higher.

In the world of residential mortgages, these loan limits are very important. Loans with a loan amounts that exceed these limits are considered Nonconforming loans, and always carry higher interest rates. To avoid paying higher interests, homeowners in need of mortgages with non-conforming loan amounts should enlist the assistance of mortgage professionals to structure their financing to keep the loans within Conforming limits.

One way to structure a non-conforming loan amount of $500,000, for example, is to do a first conforming loan in the amount of $417,000 with a second loan in the amount of $83,000. That way, $417,000 will be financed at the most favorable interest rate available.

Borrowers who are presently paying Jumbo loan rates but now have their mortgage balances fall into the conforming limits may want to look into refinancing. A qualified mortgae professional can help you in determining if there is a benefit in refinancing.

One of the most popular loans used to stay within the conforming guidelines is the combination loan known as the 80/20 combo. You have an 80% first loan with a 20% second. There are variations such as the 80/10/10 where the buyers is putting down 10%. For instance if you have a purchase price of 500,000 - 80% of that would be 400,000 for the first mortgage and keep you within the guidelines of conforming loans.

Float Period - The float period refers to the period of time when the borrower accepts a loan and when the borrower locks-in the rate. During the float period the interest rate and points on the borrowers loan will vary with the market until the loan is locked.

There usually is no minimum or maximum amount of time you can float the rate and points on your loan, although your rate and points may change on a daily basis until locked.

A competent, professional mortgage broker will explain the pros and cons of allowing the loan to float the market as opposed to locking in the rate. Once explained, it should be the borrower's choice to float or lock.

A shorter lock in period will give you a better rate typically in increments of 15 days. A 15 day lock may give you a better rate than a 30 day lock, a 30 day lock may give you a better rate than a 45 day lock and so on.

Broker Outpost | Equity Builder Loan | Cash reserves | How do Mortgage Brokers get paid | Stated Income Loan | Bad Credit Home Loan | Mortgage Quote | Interest Only Mortgage | Bi-Weekly Payment Plan | Bad Credit Home Loan | Bankruptcy | Subprime lending | Mortgage insurance premium MIP | Bi-weekly payments | Pre-qualify | What is APR