Where to Look for Home Loans
If you are contemplating buying a house, one of the biggest decisions you will face is deciding on this question: Should you use a mortgage broker or deal directly with banks when looking for loans?
There is no one right answer, but here are some things to consider.
Banks As Lenders
The vast majority of homebuyers turn to banks when seeking mortgages. These institutions can be convenient because home loans are usually offered by a customer’s primary bank.
Qualifying for a loan can be easier because your primary bank already knows about your checking and savings account activities so can more easily determine if you have the financial ability to carry a mortgage.
Many banks offer discounts to their own customers. They may also offer automatic mortgage payments from your existing account.
Nonetheless, you should not limit yourself to your personal bank when shopping for a home loan. It can be time consuming, but you should compare mortgage products at other banks and credit unions.
Using a mortgage broker can make this type of comparison shopping easier because brokers have access to a wide range of mortgage products from a variety of different leaders.
A broker can save you time in searching for mortgages and also acts as a middleman, streamlining the paperwork required by the lender. Mortgage brokers can be especially valuable for homebuyers who may have difficulty qualifying for a plain vanilla bank loan.
However, there are some caveats to working with a mortgage broker. Some brokers develop professional relationships with lenders which can benefit a buyer by accelerating the loan approval process. But a close relationship with a lender might also lead a broker to steer you to a loan that is not ideal for you. Unethical brokers may be motivated to find loans that pay them the highest commissions.
Broker commissions often range from one percent to two percent of the mortgage, which can either be paid by you, the seller and/or the lender. Just as in any profession, there are skilled and knowledgeable mortgage brokers and those who are not. Talk to more than one mortgage broker before committing to a home loan.
Selecting a Loan
Whichever lender you choose, here are some things to consider:
Good lenders will offer:
Free pre-qualification letter. This letter states that based on information the consumer provided and the credit report, the person is qualified to borrow a certain amount.
Free pre-approval. Based on an individual’s verified financial information and credit scores the individual is approved to borrow up to a certain amount.
Guaranteed time to close.
Any good lender will also offer guaranteed closing costs. Lender costs include an origination fee, underwriting fee and processing fee. Some lenders include title insurance in the fee and others do not. When comparing lenders, find out what is included in the closing costs.