When you are ready to shop for a loan, you can work directly with a lender, mortgage banker or with a mortgage broker representing many individual lenders and banks. Just a quick fact, a study was done in early 2005 by the NAMB that showed the average home buyer received lower rates and lower fees using a mortgage broker.
Direct lenders are lending there own money. They replenish the funds via the sale of your note using mortgage backed securities. Most will retain the servicing of your loan. They have in-house programs designed around the securities market, and make the final decision on your application. In addition, many Lenders actually have Wholesale and Retail divisions. In every instance, they do not disclose their profit to you at closing.
Retail divisions deal directly with home buyers like yourself. The wholesale divisions provide deep discounts to correspondent lenders and mortgage brokers in order to expand there reach, market share and profit.
Banks, such as Bank of America (a great organization by the way), are usually lending depositor funds and in rare instances deal in the mortgage backed securities market as well. However, many true banks are expanding quickly into this market. The disadvantage of a bank is the limitation in products, stricter credit requirement and they typically don't lend to credit challenged borrowers. Basically, if you don't fit within their "Box" you won't get a loan. Very few banks actually lend using FHA and VA programs. In every instance, they do not disclose their profit to you at closing.
Mortgage Bankers, also known as table funders, can originate both in the wholesale and retail market as well as broker. In addition, they usually underwrite, close and fund any loans they are not brokering. The primary difference is a Mortgage Banker can actually service your loan for up to 90 days. Profits are only disclosed when they act as a broker.
Correspondent Lenders are basically brokers in disguise. In some states, it is easier to open a Correspondent Lender business than it is to actually open a Mortgage Broker business. Correspondent Lenders can close in their own name and are not required to disclose what they are being paid by the Wholesale Lender. Profits are only disclosed when they act as a broker.
Mortgage Brokers are intermediaries who represent many lenders/investors and loan programs from which to choose. If you have special financing needs or want to shop the market for the best deal, an experienced broker may be able to find the best loan for you and in fact get you a better rate than what is offered by Retail Lenders, Mortgage Banks and Correspondent Lenders. Provided you have a reputable Mortgage Broker, or a Lender that actually brokers, you can in fact do quite well. Mortgage Brokers usually get an unfair bad rap because they are required by HUD to disclose compensation being paid to them at closing. Typically, this compensation is equal to or less than those that are not required to disclose. The difference is, you get to see it.
Depending upon your needs, any lender or broker that meets your needs is actually a good thing. Deciding who to use should not be based upon the source of the funds, but should only be based on the counsel you receive, the type of loan, the rate of interest and the cost to close.
Simply put, if you can close on the purchase of a home, does a slightly higher rate of interest really matter? If it cost you $1500.00 more to get the right loan, versus continuing to rent, is it worth paying?
Think about your needs, and then make decisions that best meet the needs you have for closing. If you have great credit, then you most certainly want to leverage that into a solid rate of interest. If your credit is banged up, and you're getting hold of a nice rate via a FHA or VA Loan, shopping your deal could cost you the opportunity to own a home at a good rate of interest.
Home Buyer Education:
Overview of Mortgage Loan Programs
DOWN PAYMENT SOLUTIONS™
Other Important Links for down payment assistance and first time home buyers:
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