Four questions to ask before choosing a mortgage broker
Mortgage brokers are engaged in the business of finding you the best home loan. Their true clients are the lenders, and their real "job" is to deliver good, creditworthy borrowers like you.
Mortgage brokers have encountered a formidable competitor in the past decade or so, called the Internet. Borrowers can compare loans through sites like Trulia Mortgage, eloan.com and LendingTree.com. Fill out a credit application and receive several offers. When banks compete, as the slogan says, you win.
That's a good way not only to pit lender against lender (a subject for another chapter), it's also useful keep your broker honest as well. Your job is to monitor the market. Why? Because loan rates change daily. A broker acting in sheer self-interest could bait you with one rate (possibly lower than reality), knowing you can't "lock" that rate until you complete the full application process. It's always a good practice to be skeptical and do you homework.
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Why haven't I seen a rate like this elsewhere?
Ask this question only after having done some homework. A similar scenario would be a broker who advertises rates below market to get you in the door, and then lists all the fees necessary to make that rate possible — even including lofty origination fees.
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What are the fees and costs associated with the interest rate you've quoted?
(Above-the-board brokers welcome questions like this.)
Fees take many forms. There are charges for your credit report, appraisal, title insurance, deed-recording, overnight deliveries, etc. For a rate quote to meaningful, it should be accompanied by a list of all related fees and costs.Your broker must supply a Good Faith Estimate of all charges before the closing. The estimated figures aren't set in stone because "third party" costs such as title insurance premiums can change. But it's possible to know the total tab, or a figure pretty close to it, several days in advance.
Ads and other promises aside, you don't really know what you'll be paying until your rate is "locked". Brokers have been known to game this process. For example, a broker might say your rate is locked when it's not, and if rates go down before closing, he could sell you the higher rate you agreed to and pocket the difference. A broker who plays this game and loses (because rates go up) could tell you that your rate wasn't really locked — it was a misunderstanding.
If your rate truly is locked, your broker will have proof of it. Hence this line of inquiry:
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May I see the lenders commitment letter that shows my rate is locked in?
Many states have started licensing brokers. This is a positive development, with potential to weed out the few bad apples remaining in the business. In the past, going into business took nothing more than a web site and a shingle. Licensing requirements will prevent scams. Still, one very basic question is always in order:
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How long have you been in business?
Longevity is important--time and nature have a way of separating the wheat from the chaff. With the array of available mortgage products more complex than ever, experience is important too. Look for at least five years in the business. With that as a minimum, your broker will have seen good times as well as bad.
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Homebuyers looking to finance the purchase of a home with a mortgage have no doubt run into the term, "points." Just what are points, what do they do and how can they help? Read on for more information. Discount points are fees/pre-paid interest paid to a ...
By Trulia | 9 Comments
Comments
In my opinion, customers are pretty savvy these days. Start talking to a loan officer about guidelines and test their knowledge. Talk about what's going on in the stock market and see if they are paying attention to what is effecting the here and now. Talk about the history of important issues like when was the last time the Treasury had to print money to fund their programs and how did it effect rates? Did it cause inflation? All of these tie into our market today. So test your loan officer's knowledge.
Regarding Trulia's comment about what brokers can do...let's not forget how lenders are just as much a part of the bad image in this market. It is true, everything about a loan officer will be going online. My credit will be checked, my background, any complaints, my employment history, etc... All of this is good. But I find it funny that if I were to know something bad was coming down the line, I could go work for a bank before it hits and nothing online will show. Bank loan officers are exempt. So you will never know any public information about them. Once the bank hires them, it's up to the bank if they do any further checks. Being a bank manager for years, they don't. Hopefully this will change.
Good Faith Estimate's are changing the first of the year. Figures cannot vary by more than 10% unless there is a circumstance to trigger a change (e.g. appraisal value is less than expected, customer changes purchase price, etc..). This will solve the negative issues presented above. This is all good. It will keep the customer from being surprised at the end (hmm.. I can think of a major bank famous for this practice).
Crystal Beard
Ambient Home Lending
Lending throughout the State of Oregon
http://www.ambientlending.com
Even a bank loan officer has access to other lenders, so in effect he/she can be like a broker anyway.
The best benefit to the borrower, the bank employee is under FDIC banking regulations where as the brokers are not. That is why we had the mortgage meltdown, brokers were not watching over the aggressive commission based employees.
Now don't get me wrong, there are some good brokers out there, I worked for one of this also, but it was harder to sell the loan.
So the best question to ask a broker; Are you regulated?
Jeff
Lastly, contrary to Jeff's comments, brokers and bankers are nationally licensed and regulated at the state level. Remember, the FDIC banks were the ones who came up with the interest-only option ARM programs that brokers sold! Unfortunately, the banks have successfully lobbied to keep their loan officers from having to obtain licensing and pass any standardized exams, so I would be sure to ask your bank mortgage loan officer if they are licensed and if they have passed an exam. I think you now know the answer.
Mike
My advice is to find a broker you can trust and who has a strong track record in the community as someone with integrity.
Joshua Christensen, Branch Mgr | Southwest Funding - Integrity
http://www.southwestfunding.com/jchristensen
http://mortgagemarketingcourse.com
We had regular trainings that were mandatory to attend, especially with FHA, we were trained quite a bit on FHA loan products. At the time, we were hourly plus commission employees. So if we did not sell loans, we were out of a job.
I was laid off because of the mortgage meltdown which I personally feel was caused by greedy people who worked in brokerage offices. They were far more unregulated that bank employees.
I still say, there are good brokers out there, I just do not know where.
Jeff
Although mortgage brokers can get your loan shopped around, the direct lenders often times can do the same thing. If they do not have loan program that fits the needs of the borrower, they have other lenders they work with.
Cheers,
Jeff
I'm a Mortgage Broker and I'm still in business. How? Client referrals.
When I began my career in the early 80's, I heard an expression used laughingly - quite alot - known as (Tongue-in-cheek) "The Golden Rule" which translates into "He who has the gold, makes the rules". I was working for a large corporation then (run by banker-types) and a disturbing and common trait amongst them was that they all considered themselves "entitled" to all that they demanded of the borrower, afterall, who needed who?
Enter the mortgage broker-mortgage banker and competition. It didn't take long before the banks figured that out and started to fight back. The truth is - a good broker only works for the client, much like a guide who leads the people in his charge through unfamiliar territory. The best brokers know this and realize that if banks become the only source of funds a client has - for the consumer: game over - soon it will be back to interest only loans with balloons (as in the 30's).
To believe that there are benelovent and caring types at the bank corporate level - who care about the borrower like a good mortgage broker would - is to be supremely naïve. I support better educated Mortgage Brokers, held to a higher standard and supported as opposed to fought by the big banks.
Perhaps in that I, too, am supremely naïve as well.
Aram Arakelyan
Your LA Broker for Life!
http://www.housevaluecheck.com
Realty Needs Network
a
as a first time home buyer who is clueless about the "old" market as well as the "new" market this debate was very informative....
thanks
The laws related to the GFE and TIL have changed. Also the passing of the SAFE act and the creation of the NMLS have eliminated most of the "bad apples" at least the ones who originate loans for a non-depository mortgage or broker.
There are "bankers" out there that can broker as well this provides the client with expanded loan program options.