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HORIZONS FINANCIAL, INC.
Why choose a mortgage broker?
"An informed borrower is a happy borrower" by Les Confused
Can Mortgage Brokers SAVE you MONEY?
Mortgage brokers represent you the borrower to obtain financing from a variety of lending sources. If mortgage brokers are middle men between you and the lender how can they save you money? Don't you have to pay extra for using a mortgage broker?
Independent surveys have shown that mortgage brokers do NOT cost you more than direct lenders. In many cases they even save you money. Mortgage brokers increase competiton in the market place, resulting in lower rates for everyone. Since mortgage brokers obtain their funds from a variety of sources, they allow you access to a large number of lenders. When you apply for a loan with a mortgage broker, you are effectively applying for loans with all the lenders that mortgage broker is approved with.
Mortgage brokers obtain rates at wholesale, markup these rates by adding points and then quote you a retail rate. Mortgage brokers are NOT employees of the lender, rather they are independent contractors. Mortgage brokers are free to set their own pricing. Therefore two different mortgage brokers using the same lender can quote you different rates/points! This is because the two brokers may markup wholesale rates differently.
WHY DO LENDERS USE MORTGAGE BROKERS?
1. Saves them time and money. The mortgage broker does all the legwork of finding customers, pre-qualying them and putting together their loan package. As a result lenders are able to offer discounted pricing to mortgage brokers.
2. Alternative to branch offices. Since personal contact with the customer is usually required a mortgage broker serves as a lenders branch office. This saves the lender tremendous amounts of time and money. Through a network of mortgage brokers lenders can service a wide number of customers.
3. Provide a matching service. Mortgage brokers know what each lender is looking for and submit loans that a particular lender is likely to approve. This saves the lender a lot of time and expense since they approve a higher percentage of loans.
4. Mortgage brokers generate about 50% of all loans. Lenders have established wholesale divisions and have hired account representatives just to service their mortgage brokers. Their is a lot of competition amongst wholesale lenders to get broker generated business.
5. Save sales and marketing expense. Mortgage brokers are responsible for all the sales and marketing required to find clients. Lenders in effect have a large sales force with little overhead cost.
GETTING THE LOWEST RATE
Don't waste your time trying to get the absolute lowest rate in the market! Instead focus on getting a good rate with a company that you can trust on delivering promised rates. There are just too many stories of consumers who were promised an incredibly low rate, only to find out that rates/fees were different at closing. Getting the lowest rate is meaningless if you do not close escrow with that rate! If price was the only consideration then everyone would be driving Yugo's!
Here is a list of things to do when shopping for a rate:
1. Get a good faith estimate of closing costs in writing. When comparing lenders, pay close attention to the loan fees on the estimate. Other fees such as title charges, government recording fees are independent of the loan, and so are irrelevant when comparing lenders. These are normally paid to companies other than the lenders. Compare the loan fees, points and the interest rate.
2. Find out what the APR on the loan is. Use this as a guideline to shop for loans. Unfortunately, APR is not well defined, so different lenders may calculate the APR differently. You cannot depend solely on the APR. Check out an article that explains APR in detail.
3. Find out how long the rate is valid for. A company might quote you a really low rate on a 10 day lock. This means you have to close your loan within 10 days. Most lenders will not let you lock in a 10 day lock unless your loan is already approved. Always ask for at least a 30 day lock.
4. When you lock in your interest rate, get the rate, the points and the length of the lock in writing.
5. If you are locking in an adjustable loan, make sure you know the margin, the adjustment caps and the life cap. If you are unsure about these terms check out our reference desk.
6. If you do business with companies who publish rates on the Internet, monitor their rates over time. Some companies price may have low rates one week and higher rates the following week. Unless you are locking your rate on application, it is a good idea to work with companies that have consistent pricing strategies.
SHOULD YOU WORK WITH 2 LENDING SOURCES?
Loan officers and mortgage brokers work hard to earn their money - just like you do. They spend many hours trying to make your deal go through and deserve to be compensated for that effort. Nothing is more frustrating in a loan officers life than to find out that she has been double-apped i.e. a borrower has filed two applications with two different lenders.
If you do work with two lenders - one of them is going to take a loss, since they do not make any money till you close. It is only fair you tell them upfront that you are working with two lenders and that you may not close the loan with them. You may offer to compensate the lender that you do not close a loan with. For example you may offer to pay the loan processing fee that is charged by that lender.
Working with two lenders can be like having two wives - hard and time consuming. One lender might have a better rate on a given day and you decide to lock with them, and on the next day the other lender may have a better rate! You may also have additional costs - such as duplicate credit report fees, appraisal fees, etc.
In most cases it may be better to work with a lender or broker that you trust and feel comfortable with. Working with multiple lenders will only raise costs for everyone - since the lender that takes a loss will have to pass this on to other customers.
