by William DiPaolo
Initially this blog was intended for those who made a living originating mortgage loans. I’ve discovered however, that some readers are non-industry types, desiring simply to better understand the ins and outs of credit reports. Glad you’re here, and starting today I will included blogs about credit from the borrowers perspective.
I am not a mortgage broker, but as I work in the mortgage industry I know many both personally and professionally. As in any profession there are some well versed in the job, and others not so much. In a way, mortgage brokers are a bit like their professional cousins, the real estate brokers, in that when real estate is booming everyone wants to be one. Know up front that newbies in the mortgage business fail because they try to maximize their own earnings (commissions) up front. The good ones understand that helping you find the best (lowest cost) mortgage today, means additional business from you (and the clients you’ll refer) in the future.
And that’s the rub. Good mortgage brokers can save you money, a lot of money, during the course of home ownership. I’m often surprised by the number of people who tell me (smugly and in a way that implies they are letting me in on a secret I’m not quite worthy of hearing) how they always go directly to lenders to save money by cutting out the middle man. Their logic breaks down because mortgage brokers are not analogous to typical retailing middle men. So whenever one of these jaw waggers corners you and starts spouting mortgage buying strategies, just remember this – mortgage brokers don’t cost you money, they save you money.
The mortgage broker makes money in two ways. First, they’ll ask you to pay them loan origination fees. This is money you pay during closing which amount is based on the size of your loan. You need to know that you should never agree to origination fees. Its kind of like agreeing to put money down when you agree to lease a car. They may request it, but just say no.
Instead let the lender pay the mortgage broker for you. Lenders generally quote the mortgage broker a wholesale interest rate which will be a bit lower than the rate your mortgage broker quotes you. The higher the rate the broker can get you to accept, the more he or she makes. Fine, we’re all capitalists after all, but simply do your due diligence and compare loan rates and programs with others and you can ensure a good deal. Some brokers, the good ones, aren’t greedy – and will present you a very attractive program. By comparing rates and terms you’ll quickly identify the best offers.
Brokers can save you money because they shop multiple loan sources for you. Many lenders do nothing but originate mortgage loans through mortgage brokers. Since these lenders have low overhead (no branches, no tellers, no mortgage sales people) they can often price lower than the direct lender even when using an independent mortgage broker to originate the loan. And the good brokers get very attractive wholesale pricing, which ultimately saves you even more.
In the future we’ll talk more about mortgage brokers, they other ways they help and how you might select a good one. But for now, just realize that you should talk with a professional mortgage broker before you make that offer on the new home.
And, yes, we’ll talk about credit too.