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Which Type Of Lender Is Right For You?

Which Type Of Lender Is Right For You?

By Crissinda Ponder, Bankrate.com (TNS)

There was a time when most homebuyers obtained their mortgage loans through their banks or credit unions. Today, however, there are a number of additional home-financing providers. Which one is right for you? Let’s take a look at the options.

DIRECT LENDERS

Banks, mortgage banks and nonbank lenders all are direct lenders; that is, employees review your application and make the decision to lend you money. Typically, the institution will sell your loan on the secondary market.

Benefits of a direct lender:

– Reliability: You probably know and trust the institution. It is regulated by state and federal agencies and likely has strong ties with your community.

– One-stop shopping: You deal directly with the source of your loan.

– Savings: As the loan originator, an institution may save you money in the loan process.

– Speed: A direct lender also may process your loan faster than other providers.

Risks of a direct lender:

– Limited choice: Lenders offer only their own programs. To comparison shop, you will need to speak with several lenders.

MORTGAGE BROKERS

A mortgage broker is a middleman who may represent the mortgage loan products of many lenders. The broker’s goal is to match you with the loan product that best meets your needs at the best price. Once your loan is approved, you will usually deal directly with the loan originator or their mortgage service provider.

Benefits of a mortgage broker:

– Variety: By shopping across a range of different programs and lenders, a mortgage broker may find you a better fit than a direct lender could.

– Qualifying: A mortgage broker can best steer you to the national or regional lenders that are most likely to accept your application based on your financial and personal information.

– Savings: You may get a more favorable loan rate.

– Speed: A broker saves you time shopping for a loan.

Risks of a mortgage broker:

– Hidden costs: Some mortgage brokers attempt to increase their profit by writing hidden costs into your loan. Best hedge: Know the loan process and ask questions.

Most financial institutions offer a limited menu of loan products, just as mortgage banks do. They typically hold mortgages in their portfolios or sell them on the secondary market.

HOME BUILDERS AND REAL ESTATE AGENCIES

Many large home builders and real estate agencies now own an in-house mortgage company to make it easier to buy their properties. These affiliated companies may operate as a mortgage banker or broker.

WHICH LENDER IS RIGHT FOR YOU?

Depending on your credit history and circumstances, you may benefit by using one source of mortgage loans over another.

WHAT KIND OF BORROWER ARE YOU AND WHAT’S THE BEST SOURCE FOR YOU TO SHOP?

– Excellent credit, easy access to financial documents, longtime employee of one company: Internet lender, bank or mortgage bank.

– Self-employed borrower, don’t want to share data about income or assets with mortgage provider: Mortgage broker.

– Repeat home shopper, rate-and-term refinance customer, financially savvy: Internet lender.

– Adjustable-rate mortgage shopper, relationship customer with many accounts at one institution: Bank, thrift.

– Convenience shopper, wants easiest loan to get, even if it costs more: Home builder or real estate agency lender.

TIPS FOR WORKING WITH LENDERS

– Get recommendations: Ask friends and family members for suggestions, especially if they’ve recently obtained a loan.

– Check credentials: Mortgage bankers are regulated by either your state’s department of banking or division of real estate.

Check with the agency to see if a lender is in good professional standing. Mortgage brokers may or may not be state-regulated. If not, check with the local chapter of the National Association of Mortgage Brokers or the Better Business Bureau to see if their record is clean. The Library of Congress has a good index of state and local government websites.

– Do your homework: Learn about typical mortgages and ask questions when something looks amiss; a broker may be trying to pad closing costs or other fees at your expense.

– Take care online: There are plenty of attractive deals online, but first make sure you’re dealing with a reliable broker or lender.

– Extra care during peak season: Unscrupulous lenders and brokers are more apt to quote you bogus rates or slip in extra costs during peak homebuying season, in hopes you won’t notice.

Photo: Be careful out there. Thomas Kohler/Flickr

As Mortgage Closing Costs Drop, You’d Better Shop Around

As Mortgage Closing Costs Drop, You’d Better Shop Around

By Crissinda Ponder, Bankrate.com (TNS)

The average total cost a borrower pays to close on a home loan has dropped slightly, an exclusive Bankrate.com survey finds.

Bankrate’s 2015 survey of closing costs shows that closing costs fell 7.1 percent year over year — to $1,847 in 2015 from $1,989 in 2014.

About The Survey

Bankrate requested good faith estimates from up to 10 lenders in a populous city in each state and Washington, D.C., for a $200,000 mortgage. The hypothetical loan was to buy a single-family home for a borrower with excellent credit and a 20 percent down payment.

The averages comprise origination fees charged by lenders, plus third-party costs such as appraisal and inspection services.

Some highly variable costs were excluded — homeowners insurance and other prepaids, discount points, title insurance, and taxes — so your final charges on closing day likely will be higher than the averages found in the survey results.

It’s Gonna Cost More, Though

Variable costs could add up to another $2,500 or $3,000, depending on where you live, says Michael Becker, branch manager for Sierra Pacific Mortgage in White Marsh, Md.

In this year’s survey, average third-party fees rose nearly 22 percent, while average origination fees fell about 22 percent. What could explain why these average fees went in opposite directions?

“I can only speculate, but my best guess is that third-party fees went up because of inflation and an increase in the cost of providing those services,” Becker says. “Origination fees probably dropped because of a drop in mortgage rates.”

Borrowers today are paying less to get a better rate compared with 2014, he adds.

Industry Braces For New Documents

The mortgage lending process is getting a makeover soon, which is intended to change, in the borrower’s favor, the path to homeownership. The “Know Before You Owe” changes also will affect mortgage closings.

As part of the Dodd-Frank Act, the Consumer Financial Protection Bureau, or CFPB, has combined the four forms that borrowers get during the application and closing processes into two simpler documents.

New Documents For Homebuyers

Loan Estimate

– Replaces good faith estimate and Truth in Lending Act, or TILA, statements.
– Given to borrower within three business days of home loan application.
– Lists estimated costs associated with mortgage.
– Easier to compare multiple mortgage quotes.

Closing Disclosure

– Replaces the HUD-1 and final TILA statements.
– Sent to borrower three days before closing.
– Provides details about mortgage terms.
– Lists what is expected of the borrower at the closing table.

The new forms were slated to take effect Aug. 1, but the CFPB has delayed them until Oct. 3.

Compliance Costs Trickle Down To Borrowers

Regulations limit the amounts that lenders can charge above the numbers quoted in the estimates. “Lenders cannot impose new or higher fees on the final loan unless there is a legitimate reason,” reads a release on the CFPB website.

The costs of regulatory compliance are higher than ever, says Pava Leyrer, chief operating officer at Northern Mortgage Services in Grandville, Mich. Those costs are passed on to borrowers. The uptick isn’t likely to slow down anytime soon; industry leaders have warned that mortgage lending and its associated costs will continue to increase.

Title insurance costs are rising, too. “For the most part, our borrowers, on a purchase, are going to see a pretty hefty increase in title insurance,” Leyrer says. “A couple hundred bucks is a lot on a loan.”

You Still Have Options, So Shop

Many borrowers aren’t aware that they can shop around for competitive closing costs, says Marietta Rodriguez, vice president of national homeownership programs at NeighborWorks America in Washington, D.C.

“They sort of let their lender or their realtor drive how they purchase insurance or their home inspection or any other costs related [to the loan],” she says. “I think most borrowers don’t realize they have choices.”

Certain charges, such as taxes, are fixed: You can’t shop around for a better deal. Becker cautions that you should take a close look at the costs you can control.

“Make sure you’re comparing apples to apples,” he says. “Take into consideration the interest rate and the lender fees out there.”

Don’t be afraid to ask questions to fully understand what you’re paying, Leyrer advises. “Compare the service you get, the reputation, and the costs, along with the rate,” she says, “and then go with what you think will fit your needs the best after doing just a little bit of research.”

Photo: Homes are seen for sale in the northwest area of Portland, Oregon, in this file photo taken March 20, 2014. REUTERS/Steve Dipaola/Files