Laura Houle Real Estate Services

Unraveling the Home Loan Tangle

Posted on October 25, 1998 by laura
Laura Houle
Realtor’s Corner (The Daily Californian newspaper)
We have noted in previous articles that the most crucial part of a real estate transaction is the financing. Once you have been pre-qualified and have found the house of your dreams, if you are not paying all cash, you will have to obtain a loan.

Should you deal directly with the bank? Should you deal with a mortgage broker? We all know what banks are and what they do, but few of us know precisely what a mortgage broker does and what the differences might be.

The disadvantage of dealing with a bank is that you are dealing with one source only. If, for some reason, you do not qualify or the bank does not have a loan that suits your particular situation, you must start all over with another lender. The loan officer at a bank does not have to be licensed by the Department of Real Estate, as does a mortgage broker, because the bank is using its own money. For this reason banks do not broker loans, except from a wholesale division, dealing with mortgage brokers. The loan officer of a bank is also an employee of the bank and therefore represents the bank.

A mortgage broker has contacts with wholesale lenders and is licensed by the Department of Real Estate. The broker, in effect, buys the money from the wholesaler at discount prices and lends it to you. The broker must meet the rigid standards of the lender, both financially and in their work methods, in order to be approved by them. The mortgage broker is ultimately responsible for the loan should fraud be proven.

The mortgage broker actually represents the borrower by packaging the loan to highlight the borrower’s strengths and minimize the weaknesses. A wide array of programs is offered, with competitive rates, fixed and adjustable. The broker shops for the best rates and can move a “problem” loan from one lender to another. Mortgage brokers, or the loan

representatives that may work for them, usually have extended business hours. They are generally available evenings, weekends and make house calls.A mortgage broker is paid only a commission and is thus motivated to close loans. Payment to the mortgage broker is included in the cost quoted to you. The mortgage broker adds his or her cost to the wholesale price and that is where competitiveness enters.

You often see loans offered with no points, or no costs and no points. This means that the interest rate is lightly higher than the best available rate, and the broker is being paid a substantial amount by the lender. The broker can then pay some or all of your costs, depending on the amount the lender is paying for that particular rate.When you refinance, you are able to add the costs to the loan. With a purchase, you do not have this option. Today, however, there are loans available with no down and it is allowable to have someone else pay your non-recurring closing costs: A seller, parents in a gift form, etc. Non-recurring costs are just that — they are generated one time only. These fees would include processing, points, etc. Interest is an example of a recurring cost and it would be paid by the borrower.

Pricing is received daily by the mortgage broker, sometimes twice a day. This pricing is affected by what is happening in the nation and even the world. Employment numbers, the stock and bond market, retail sales, the Consumer Price Index, existing home sales, etc., all have an influence on interest rate pricing. You have a choice of locking in a rate or jumping in at a certain time, when it is felt that the pricing is particularly favorable. The length of time of the lock can also be reflected in the pricing.

How a loan is repackaged can determine whether or not the loan is approved. It is important to choose an experienced mortgage broker who comes highly recommended, is someone with whom you feel confident and who has a good track record. Good mortgage brokers want to build an ongoing relationship so that you will use their services again and recommend them to your friends.

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