“How much do I need to put down?”
“What is the going interest rate?”
“What bank is the best for loans?”
The answer? IT DEPENDS!
If you did not study business in school, and even if you did, chances are this topic can be confusing to say the least. With many of our clients being first time homebuyers, I get asked these questions a lot. The number one thing to remember here is that everything depends on your financial background. Every direct lender and mortgage broker has specific programs that work for different individuals and depend on many factors including credit score, income, debt to equity ratio, investments and portfolios.
I like to think of a direct lender as more of a McDonalds where mortgage brokers are more like local craft eatery. McDonalds may not have the best reputation for food and overall health, however they win with their aggressive advertising, low prices, quick service and consistency of their product. However, the lowest price does not always equate to the best service and product. The local eatery often knows you by name when you walk in the door, has a higher quality of healthy delicious food options that will keep you coming back in the long run. They don’t win business on the big brand but more the community following and word of mouth.
BIG BANKS – LENDER: (Wells Fargo/Bank of America/Chase/Citibank Etc.)
When most people think home loan they generally gravitate toward larger, “big banks”. While big banks have their benefits, in this current market, they have proven to slow or kill deals in my recent experience.
Sometimes your bank will try to sell you on customer loyalty. They will give you a great rate, lower closing costs and promise of great service, but they are restricted by what option and products the bank offers at that time. You then become one of many, a piece of paper in the stack, they will assign you a loan officer who will put you in the pile on their desk. This has been one of our biggest issues closing in 2013-2014.
Banks tend to be slow to communicate as many different hands are involved the deal. They don’t create a sense of urgency, don’t always ask for all documents up front, and several weeks into the deal they may need more financial documents or insurance statements.
Real Life Example: In a recent deal, all three of our loan officers working for the specific company on our purchase were on vacation, and told no one! Our buyer almost lost the home and her initial deposit due to the lack of communication from the bank. They didn’t ask for all paperwork up front and this also cost the buyer in carrying cost from her current property. This created a tense situation between all parties in the transaction and the seller was ready to cancel.
MORTGAGE BROKER: Mortgage Broker Joe Shmo
Think of a mortgage broker as your Realtor for loans. They are required to be licensed by the state, they earn their own business through client referrals, advertising and reputation, and are not regularly in big business advertisements. They work with a variety of lenders to fit YOUR needs. If you don’t close your loan on time or are unhappy with their service, you have a much bigger impact on their business. As with Realtors, they can get the reputation of being sleazy sales guys only out for money because they work solely on commission. There is no bank backing their salary, business must be sought out on their own.
Mortgage Brokers are not restricted by the limited product offerings of the bank they work for but can search the open market for the best product for you personally. You are one of their few clients and rely on the deal closing to make their commission. Commission is sometimes paid by the direct lender and sometimes this is paid as a percentage in “points” added to you loan. Costs usually end up approximately the same as they would with a big bank.
Real Life Example: In a recent closing, I was able to call the mortgage broker on his cell phone at any hour of the day for an update. Even if there was a hiccup, which there usually is something, I was able to catch it early and get whatever was needed to make the deal happen for all parties. If an issue arises, it is dealt with directly rather than being with a long line of people.
Words from a Mortgage Broker:
“It’s all about operations and loan officer expertise. Sure [Wells, Citi and Chase] can draw you in with bottom floor rates but it’s what happens after that is the problem. Your loan is shipped out of State to a giant fulfillment center where you are simply one of thousands. They just struggle to meet a 30 day closing because there is no personal touch. Think of it like a giant box with thousands of white balls in there. At the bottom of the box is 10 holes and it’s only one ball at a time that can come out but all the balls are fighting with each other to come out at the same time. It’s chaos.” – Mortgage Broker
Ultimately the choice is yours as to what you feel the most comfortable with.
It’s important to go with a good mortgage broker. Ask around for referrals and check reviews to find someone you trust!
Kaitlin Pierce, Realtor/Broker Associate CalBRE 01925030