Financing in Scottsdale>Question Details

Vk, Home Buyer in Scottsdale, AZ

Which is a better way to finance a loan, commercial bank or a private lender? I m a 1st time home buyer and my credit score is excellent.

Asked by Vk, Scottsdale, AZ Mon Nov 14, 2011

Since my credit score is above 720, i would like to know which is a better way to take a fixed rate 30 yr mortgage, traditional commercial banks or private lending?

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Answers

16
Dear VK:

Either way, with the best interest rate. This assumes you have the down payment. 20% down usually avoids the mortgage insurance requirement from lenders. Make sure you know who the private lender is. Have your attorney or advisor review the loan agreements.

Shop around for rates. If you need a referral just ask. Your Realtor can help you with this.

Options:

1. Conventional loans
2. Fannie Mae on Fannie Mae properties 3.0% down
3. VA loans 0% down
4. FHA loans 3.5% down
5. Seller carrry loans
6. Conventional Loans (Banks)
7. Private lenders (may take more risk with higher interest rates)
8. Smaller Community Banks (Scottsdale has several)

For more on mortgage loans: http://www.arizonahomesland.com/arizonamortgageloans.html

Jeff Masich
HomeSmart Realty
Scottsdale
Web Reference: http://ArizonaHomesLand.com
0 votes Thank Flag Link Mon Nov 14, 2011
It all depends on what rate you can get from a private lender. Most private lenders will not finance you for a long term and they usually have a higher interest rate than a bank. With the rates as low as they are now, I would think that you would be better off with a bank unless you have other issues. Things like a steady job with a good job history as well as enough of a down payment with some cash reserves are other things that banks review before lending money for a home. If you have any other questions, feel free to contact me and I will either refer you to a private lender or a traditional lender.
0 votes Thank Flag Link Mon Nov 14, 2011
Vk -

Just a quick reply to Bill's comment that should be clarified. I have seen Bill answer questions on here many times before and he is a knowledgeable guy and seems to be very straightforward - so no disrespect to him - but I did not state that ONLY mortgage brokers can go directly to Fannie Mae. It may have appeared that I was intending to state only brokers can do so. However, some bankers can certainly sell directly to Fannie, but only those bankers with approval to sell direct can do so. If I stated that ALL bankers can sell directly to Fannie Mae that would have been wrong. Similarly, not all brokers are approved with lenders that can sell directly to Fannie Mae. Its just that there will generally be more than one lender that a broker can go to that will sell direct to Fannie (for the underwriting flexibility) and then a broker will still have the ability to shop rates among those lenders who sell direct.

Another point to clarify is that while brokers typically do not have an underwriter in their office, there are usually very well established relationships with the lenders and underwriters that a broker works with on a regular basis. Those relationships are very instrumental in maintaining control of the process.

By no means should you feel that going with a mortgage banker is a bad choice when compared to a mortgage broker. I have also worked for both and my preference is to be a broker. I feel that I am able to have greater flexibility in getting loans done and I feel that the higher level of disclosure required of a broker provides more clarity to my clients about what they are paying to get their loan. In fact, a major recruiting point that bankers make to us loan originators is the fact that they do not have to disclose YSP. I always wondered if you're earning a fair compensation for the work that you do, why should there be a problem disclosing it? Please don't take that to mean that just because a loan originator works for a mortgage banker that he/she is earning an unfair compensation. That's not the case. I just feel that disclosing what you're charging makes for more transparency and the client will never have to wonder if they got a "fair deal".

Bill is definitely correct in his statements about credit scores. That warning about shopping for a loan lowering your credit score is either from lenders who are trying to scare you off from shopping or agent's who've been misinformed by those lenders.

I think Bill will agree that you can get very similar rates/fees/service from either a mortgage banker or broker, but the true key to your satisfaction with the process and your loan terms is to work with an experienced Mortgage Loan Originator that you can trust. What will make or break your home purchase is working with someone who knows what they are doing and will always put your needs ahead of their own. I'm sure that Bill's clients are more than satisfied with the job he does for them as is probably also the case with most of the lending professionals who answer questions here on Trulia.

Let me know if I can be of any further help.

Brian Cardenas, NMLS #183143
Mobile: 480.233.7897
0 votes Thank Flag Link Mon Nov 14, 2011
Way off topic, but in an effort to clarify a comment from Bill regarding a transaction for a first time home buyer:

Buyers Agent don't charge Buyers a commission, it is predetermined by the Seller of the property you are purchasing from and paid directly to Buyers Agent from Seller through the Title Co.

I would never shop any service based on rate, in a historic economic climate like the one we have been in and continue to experience through constant evolution I think knowledge and experience is what I would look for in a Realtor.
Web Reference: http://griffinmoody.com
0 votes Thank Flag Link Mon Nov 14, 2011
Hello Again:

Sorry, but a few remarks need addressing:

Brian indicates only mortgage brokers can benefit from going directly to Fannie and Freddie. Not true. Mortgage Bankers and Commercial Banks may also.

Christine states: "Please be careful 'shopping'; your credit score will be affected each time it is pulled..." Not true. Fair Isaac Corporation (originator of FICO credit scores, which are what is used for mortgages) states in their "myFICO" report: "Note: Multiple mortgage and auto inquiries are treated as a single inquiry in any 45 day time period." Most of my clients don't feel the need to shop around, but if they chose to, the impact to their credit scores is fairly minimal (5-7 points, I believe), if they keep it within this time period.

Finally, as mentioned by many of the agents, be sure to interview a number of realtors to see who will give you the lowest commission percentage possible. As Bob put it: "Tell them that you are shopping each other and watch the magic happen for your advantage!"

Take care. Bill.
0 votes Thank Flag Link Mon Nov 14, 2011
Please be careful 'shopping' your credit score will be affected each time it is pulled & today 720 is almost at the tailed for added cost except FHA & VA...lenders will do a fee worksheet as GEE no longer provided without a commitment from the buyer
0 votes Thank Flag Link Mon Nov 14, 2011
Hello Vk:

Let's look at this from a lender's perspective: There are three "mainstream" types of lenders: Commercial Banks (BofA, Wells Fargo, etc.); Mortgage Bankers (broker loans to most of the commercial banks, Fannie and Freddie, and have their own source of funding); and, Mortgage Brokers (strictly broker loans to others, with no in-house fundings). When you say "private lending", as you can tell from the responses before me people think "Hard Money" loans, this means either through one individual or a company which has its own money. Typically, private money is for unusual situations (lots of assets, but maybe not the type/amount of income the other three types would want; or the home needs work and the other three won't fund it until the work is done; etc.--NOT WHAT YOU ARE ASKING ABOUT).

I have worked at all three over my career:

Commercial Bank--Might get best rates here, if the particular bank you chose to work with, is "buying the market" at the exact time you need the loan. Many times banks will be quite busy, so they will raise their rates to slow down the volume. They tend to be relatively slow in processing loans right now, also. Their loan officers do NOT have to be licensed; tend to be less experienced, on average, due to it being a bank (underpaid and over-managed). Loans are underwritten "in-house" and their "accept box" can be confining sometimes.

Mortgage Broker: Not a bad choice. Can shop your loan to various lenders, so loan originator will be able to go to bank which is "buying the market" with aggresive rates, and be able to take it to someone who is getting deals done in a timely manner (which can get to be more important than "the best rate"!!). Down side is all underwriting is done by the ultimate lender, so your loan originator has almost no control over how the loan proceeds. Licensed.

Mortgage Banker: Prejudiced, but I find it to be the best choice. I can shop around for you to find best rate and timely closings. The underwriting is usually done "in-house", which allows for open communication with your underwriter when issues come up, which is common on most loans today, even if you are the best borrower EVER!! We are turning purchase loans around in two days (from file submission). Licensed.

I love to work with first time homebuyers, as I like to guide them through the process (see my Mission Statement below) , teaching them what they need to know for this one and all future purchases/refi's; and, they usually let you know how excited they are--what could be better?!?

Give me a call.

Bill Parker, Loan Officer
AZ Lic# 09011570
NMLS #223607
CPA--Licensed, no longer practicing

Legacy Group Lending, Inc.
15333 N. Pima Road, Suite 300
Scottsdale, AZ 85260
(O) 480-993-3080; (M) 602-565-3646; (F) 480-993-3081
EM: Bill.Parker@Legacyg.com
Website: http://www.LegacyG.com

MISSION STATEMENT: To create an unbelievably enjoyable experience for my clients, while guiding them through the most important financial transactions of their personal lives. My clients know me as their Mortgage Lender for Life. I truly appreciate your referrals.

If you think it's expensive to hire a professional to do the job, wait until you hire an amateur.
Red Adair, Oil well firefighter
0 votes Thank Flag Link Mon Nov 14, 2011
I would shop both a mortgage broker versus a big bank. Let them compete for your business. You will absolutely see a difference in not just the rates, but the closing costs.
I just had a client have a mortgage company compete against Wells Fargo for his business. He ended up with a low interest rate with almost NO closing costs. Wells Fargo won, but it was very close.
So, go to a big bank and meet with one of their brokers. Then call a reputable mortage company and meet with them. Tell them that you are shopping each other and watch the magic happen for your advantage!
0 votes Thank Flag Link Mon Nov 14, 2011
Hi Vk -

Your best bet is with a mortgage broker. "Private" lending or hard money lending is the most expensive financing. Commercial banks (i.e. Wells Fargo, Bank of America, etc.) have decent rates, but typically very stringent underwriting and slow turnaround times. Mortgage bankers and mortgage brokers will have better rates and the ability to close your loan quicker and with better service. Mortgage bankers will be limited to their programs and investor overlays (more restrictive guidelines than Fannie Mae and Freddie Mac). Mortgage brokers will have the choice of a larger number of lenders to fit your situation or for best rates and can go to a lender that sells directly to Fannie Mae to get the most flexible underwriting guidelines if needed. The other advantage to a mortgage broker is that brokers must fully disclose all fees paid as part of your transaction where mortgage bankers do not disclose the YSP (or SRP) that they keep when they sell your loan. You will have the most transparency when dealing with a broker. Hope that helps.

Brian Cardenas, NMLS #183143
Mobile: 480.233.7897
0 votes Thank Flag Link Mon Nov 14, 2011
Andy's 100% correct. Private lenders usually will charge you a lot more. Still, there's no harm in getting quotes from both.

Right now, mortgage rates are around 4% for 30 year fixed loans and maybe 3.25% for 15 year loans. Private lenders may charge you 10%-12% or more. Also, most of the private lenders I know won't do 30 year mortgages. They may amortize a mortgage over 30 years, but you'd still have to refinance in 3-5 years. Better to lock in those low rates now. But there's no harm in getting quotes from a range of lenders.

Hope that helps.
0 votes Thank Flag Link Mon Nov 14, 2011
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
Contact
Hello Vk,

Both have pros and cons. Best could be a "private" loan with parent that may even give you a 0% rate. But is that really the best way to go? If every time they come over and comment you're not keeping it as clean as you should, will you feel obligated to go get the dust mop? If so...not such a great idea. Different lenders have access to different loans depending on your profession and area you're looking to buy. I have some great bankers/lenders that could assist, if you'd like. And of course, if you need an agent, write back, too!
0 votes Thank Flag Link Mon Nov 14, 2011
I will agree - mortgage broker will provide you more choices in most cases.
You would like to work with a lender that will explain/analyze all the options for you, provide you with good service and will be able to close on time.
Web Reference: http://www.talktosteffy.com
0 votes Thank Flag Link Mon Nov 14, 2011
Even with good credit, some banks underwriting requirements / processes can be extremely difficult. While everyone wants to get the best rate at the lowest loan costs, one also has to weigh who they are working with. I have a few clients that have mentioned wells fargo as being excellent to work with. I've personally had good experiences with both USAA and Navy Federal Credit Union (military banks). Also, as people have noted below, I good mortgage broker can really be a big help as well.
0 votes Thank Flag Link Mon Nov 14, 2011
Private lenders typically carry much higher interest rate, unless by private you mean a family member or something.....Typically working with a mortgage broker will provide you the best options for rate and terms. Damian Feller at Alliance Financial is very competitive. He can be reached at 480-776-7508.

Anything I can do to assist, just ask.

Andy Griffin
480-229-2393 / andycgriffin@gmail.com
Web Reference: http://griffinmoody.com
0 votes Thank Flag Link Mon Nov 14, 2011
Hi,

I'd go to a private lender since they will be able to choose from more loan options that would best suit your needs
Web Reference: http://rjghomes.com
0 votes Thank Flag Link Mon Nov 14, 2011
Mortgage broker is usually best rate
0 votes Thank Flag Link Mon Nov 14, 2011
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