In selecting the right loan, you need to choose the right lender or mortgage broker. Finding the right person to deal with is probably the most important thing you can do to get the best loan. A competent and honest person will find you the best possible loan and charge you a fair price for the service.
If you have your down payment money, you will be given any number of the different programs being offered. You will be treated well because of your available down payment and should get answers to all your questions.
If you have access to a credit union, see what it is offering. Credit unions usually do not offer many mortgage loan programs, so it is fairly easy to compare what they offer to your bank or savings and loan institution’s programs.
The last, and sometimes the best, choice is a mortgage broker. An independent mortgage broker has access to thousands of loan programs. If you get a competent and experienced mortgage broker, he or she will eliminate the programs that are difficult to work with and will know where you can get the best loan for your situation.
Many large lenders have subsidiary mortgage companies. The employees may be simply funneling loans to specific programs. You want to deal with someone who has the freedom to place your loan with the lender that has the best deal. If you use a broker to help you sort through all the available options, you may be involved with back points. These are fees paid to brokers by lenders, based on the interest rate.
Example: A lender may offer the broker one point on a 6% loan and two points on a 6.25% loan. The broker may then tell the borrower that the best loan available is at 6.25% and make the higher commission. An up-front, ethical broker will tell the borrower in advance how much will be charged. If 1%, the borrower gets the 6% loan. If 2%, the broker will tell the borrower that to get a 2% commission, the borrower has to pay 6.25%. The borrower can then choose to pay one point out-of pocket to the broker and get the 6% loan or may want to pay the two points out-of-pocket and get an even lower rate.
The advantage is that knowing how much the broker is charging lets the borrower make decisions. You may believe that the commission is too high and seek a different broker. If you are not told the commission amount as in the previous example, you may believe that you are paying one point when you are actually paying two. In so-called no points loans, you could, in effect, be paying two points when you believe that you are not paying any.
The borrower may ask the broker to lower the commission. There is a lot of work involved in putting together a loan package. If you have outstanding credit and income-to-debt ratios, and you are putting down 20% or more, you may ask the broker to slightly lower the commission. If you have any problems that require special handling by the broker, he or she has probably more than earned the usual commission. Whatever the situation, know the broker’s fee and get a written commitment that the fee will not change.