Someone once asked HMAC: If you were shopping for a Loan Officer. How would you select one? Do I need a mortgage broker to get a mortgage?
You might believe, the interest rate is one of the last reasons to choose a lender. I say this because almost all loans get ultimately sold to the same pool of investors-Fannie Mae, Freddie Mac or Ginnie Mae. Lenders earn their money by originating and funding loans which they then sell to investors for a small profit. The investors pay a set price for these mortgages, depending on what the market is doing on any given day.
It’s important to know this as a consumer so that you realize that there isn’t a huge spread in rates between one lender and the next. You should be looking for different criteria for choosing a lender to purchase or refinance a home.
Loan Officer and Mortgage Terminologies
You asked about mortgage brokers, but it might be a good idea at this point to talk about some terminology. A mortgage broker is a licensed person who acts as a go-between for lenders and consumers. The broker will typically receive a fee from the lender for those services. It does not usually cost more to use the services of a mortgage broker.
There are also mortgage bankers. Although you might think a “banker” is someone sitting behind a fancy desk in your local Too Big To Fail bank, the term is actually broader than that. A mortgage banker is someone who originates and funds mortgages in the name of his or her company. They will then sell the funded loan to the investor for a small profit. It does not cost more to use the services of a mortgage banker or a commercial bank when you are seeking a mortgage.
You might ask what the difference is between a “banker” and a “broker.” Both do essentially the same job, but under today’s regulations, there are minor differences between the two types of loan originators. A broker is considered the “originator” under the new regulations. A banker is seen as a “creditor.” The disclosure documentation is very slightly different between the two, but in most cases, there are functionally the same. A banker, however, may have a bit more flexibility when it comes to getting your loan funded.
Let’s consider that “broker” and “banker” are essentially interchangeable terms. Many people who used to be brokers are now bankers. Some don’t even change the name of their company or their location.
How Do You Select a Loan Officer?
I’d suggest that a better way to ask your question might be to ask, “Am I better off going to my neighborhood Too Big To Fail bank or finding an independent lender (broker or banker)?” Here is what you should look for when you look for a mortgage.
First, you should be aware that getting a mortgage today involves more moving parts than previously. This means that having a loan officer to guide your application through the process is very important. It doesn’t matter whether your loan officer is a banker or broker; what matters is that you have a point of contact to answer questions and let you know how the process is going.
A good loan officer will also help you as a trusted advisor; they should be able to let you know if there are ways where you might tweak your credit score so as to get better pricing on your loan. For example, raising a credit score from 735 to 740 could save $1,000 on a $400,000 loan. Accomplishing that could be as simple as reducing the balance on a single credit card.
Your loan officer should also have a good feel for the performance of the market. Mortgage rates change every day, based on the price of a type of bond called a Mortgage Backed Security (MBS). The price of the MBS changes during the day according to market activity. It directly affects the rates for mortgages. To give you an idea, if the price of the MBS goes up from one day to the next by .25% (that would be $.025 per $100 of bond value), the cost of a mortgage will improve by .25%. That means that a $400,000 mortgage would be $1,000 less expensive.
Loan Officer and You
This doesn’t mean that the cost of your loan is constantly fluctuating. There will come a time in the mortgage process when you have to “lock” the rate. This means that the lender is now committed to funding the loan at an agreed price and terms, regardless of what happens in the market. If your loan officer believes, from being aware of the market activity that rates might improve over the near term, he or she may advise you not to lock right away. Conversely, your loan officer may believe that rates may increase soon based on market activity and would encourage you to lock early, thus protecting from rising rates. No one is right all the time, but you’re far better off dealing with a lender who understands the mortgage markets.
To answer your question—FINALLY—the answer to your question is no…but regardless of whether you go to a Too Big To Fail bank or an independent lender (broker or banker), your interests are best served by finding someone whom you can trust as a resource and trusted advisor.
I hope this is helpful. Good luck!
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