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The Advantages of Different Types of Mortgage Lenders
What kind
of lender is "best?"
If you ask a loan officer, "What kind of lender is best?" it is going to
be whatever kind of company he works for and he will give you a list of
reasons why. If you meet the same loan officer years later, and he works
for a different kind of lender, he will give you a list of reasons why
that type of lender is better.
REALTORŽs will also have differing opinions, and their opinions have
changed over time. In the past, it seemed like most would often recommend
portfolio lenders. Now they usually recommend mortgage bankers and
mortgage brokers. Most often they direct you to a specific loan officer
who has demonstrated a track record of service and reliability.
This article discusses the advantages and disadvantage of different types
of institutions, not the individual loan officers. However, it is often
more important to choose the correct loan officer, not the
institution. The loan officer has many responsibilities, one of which is
to act as your representative and advocate to the lender he works for or
the institutions he brokers loans to. You want someone who has proven
dependable and ethical in the past.
Regarding the institutions, the truth of the matter is that each type of
lender has strengths and weaknesses. This does not even take into account
the variety of other factors that influence whether a lender is "good" or
"bad." Quality can vary, depending on the loan officer, the support staff,
which branch or office you are obtaining your loan from, and a variety of
other factors.
PORTFOLIO LENDERS
Savings & Loans are quite often portfolio lenders, as are some banks.
Portfolio lenders generally promote their own portfolio loans, which are
usually adjustable rate loans. They will often pay more compensation to
their loan officers for originating a portfolio product than for
originating a fixed rate loan. You may also find that they are not as
competitive as mortgage bankers and brokers in the fixed rate loan market.
However, it is often easier to qualify for a portfolio loan, so borrowers
who may not qualify for a fixed rate loan may be able to obtain a loan
from a portfolio lender. A borrower may be able to qualify for a larger
loan from a portfolio lender than he could obtain from a fixed rate
lender.
Portfolio lenders also can serve as "niche" lenders because certain things
are more important to them than meeting the more standardized underwriting
guidelines of a mortgage banker. An example would be a savings & loan
which is more concerned with an individual's savings history than being
able to fully document income, among others things.
If you apply for a loan with a portfolio lender and you are declined, you
usually have to start the process over with a new company.
MORTGAGE BANKERS
If we are talking about the larger mortgage bankers, you can count on them
having several strengths. For the biggest ones, you will recognize the
"brand name."
Usually, they are much better at promoting special first time buyer
programs offered by states and local governments, that have lower interest
rates and costs than the current market rate. These programs are often
available to buyers who have not owned a home in the last three years and
fall within certain income guidelines.
Mortgage bankers may have problems just because they are "too big" or they
may operate like well oiled machines.
If you are buying a home and you need a VA or FHA loan and the development
you are buying in has not yet been approved, they will be better at
getting it approved than other lenders.
If your home loan is declined for some reason, many mortgage bankers allow
their loan officers to broker the loan to another institution. However,
because your loan officer is so used to promoting the company's product,
he may not be familiar with which institution may be the best one to
submit your loan to. Another reason is because wholesale lenders do not
expect to get many loans from direct mortgage bankers, so they do not
expend much marketing effort on them.
BANKS and SAVINGS & LOANS
Their major strength is that you will recognize their name. In addition,
they will usually be operating as a mortgage banker. a portfolio lender,
or both, and have the same weaknesses and strengths.
MORTGAGE BROKERS
The major strength of mortgage brokers is that they can shop the wholesale
lenders for which lender has the best rate much easier than a borrower can
on his own. They also learn the "hot points" of certain wholesale lenders
and can hand-pick the lender for a borrower which may be unique in some
way. He will be able to advise you whether your loan should be submitted
to a portfolio lender or a mortgage banker. Another advantage is that, if
a loan gets declined for some reason, they can simply repackage the loan
and submit it to another wholesale lender.
One additional advantage is that mortgage brokers tend to attract a high
number of the most qualified loan officers. This is not universal.
Mortgage brokers also serve as the training ground for those just entering
the business. If you have a new loan officer and there is something unique
about you or the property you are buying, there could be a problem on the
horizon that an experienced loan officer would have anticipated.
A disadvantage is that mortgage brokers sometimes attract the greediest
loan officers, too. They may charge you more on your loan which would then
nullify the ability of the mortgage broker being able to "shop" for the
lowest rate.
WHOLESALE LENDERS
Borrowers cannot get access to the wholesale divisions of mortgage bankers
and portfolio lenders without going through a broker.
When REALTORŽs or Builders Recommend a Lender
If your REALTORŽ or builder make a suggestion for a lender, be sure to talk
to that lender. One reason REALTORŽs and builders make suggestions has to
do with the fact that they have regular dealings with this lender and have
come to expect a certain amount of reliability. Reliability is extremely
important to all parties involved in a real estate transaction.
On the other hand, a recent trend in mortgage lending has been for real
estate companies and builders to own their own mortgage companies or
create "controlled business arrangements" (CBA's) in order to increase
their profitability. These mortgage brokers sometimes become used to
having what is essentially a "captured market" and may not necessarily
offer you the lowest rates or costs.
Some real estate companies also offer different types of incentives to
their REALTORŽs to recommend their company-owned mortgage and escrow
companies or lenders with whom they have CBA's. Dealing with one of these
lenders is not necessarily a bad thing, though. The builder or real estate
company often feel they have more ability to expedite matters when they
own the company or have a controlled business relationship. They cannot
usually influence the underwriting decision, but they can sometimes cut
through "red tape" to handle problems or speed up the process. Builders
are especially forceful on having you use their lender. One reason is that
there are certain intricacies in dealing with new homes. If you use a loan
officer who usually deals with refinances or resale home loans, he may not
even be aware of how different it is to close a mortgage on a new home and
this can lead to problems or delays.
It is in your interest to know if there is any kind of ownership
relationship or controlled business arrangement between the real estate or
builder and the lender, so be sure to ask. Do not automatically disqualify
such a lender, but be sure to be more vigilant on getting the best
interest rate and the lowest costs.
CONCLUSION
Make sure to do a little shopping for yourself. By knowing the interest
rates of the market and making sure your loan officer knows you are
looking at rates from other institutions, you can use that as leverage to
make sure you are obtaining the best combination of service and lowest
rates.
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