These days, getting a mortgage is not a one-size fits all proposition.
Banks may offer several loan programs, with differing interest rates and terms, and each bank may offer its own set of programs. Trying to buy and sell at the same time adds another complicating factor to the mix.
That’s why we strongly recommend our buyers research and compare mortgage lenders. Rates vary by lender, change daily, and are negotiable! Even a half percent difference has a great effect. The total interest paid for a $400,000 30-year fixed rate loan at 5% is ~$373,000. At 4.5% it is ~$330,000, a difference of over $40,000!
Borrowers have several options to explore, and it is helpful to understand how they differ. Commercial banks, community banks, and credit unions are considered direct lenders. These institutions originate, process and fund loans using their own money. Specialty or mortgage lenders that only sell mortgage related loans (Quicken, Rocket Mortgage) also fall into this category. Mortgage brokers are another option. They function as middlemen and work with a variety of lenders to find loans for clients, but do not lend out money directly.
Many buyers turn to the banks that hold their credit card, checking, or savings accounts for a mortgage. Borrowers often assume it will be more efficient to work with the bank with whom they have a relationship, but many times these loans are sold off.
Also, buyer beware – don’t just look at the interest rate you are being offered, look at the whole picture (and we can help you with this). For example, banks may offer higher rate loans with no closing costs, or lower rates with discount points. Banks are not required to disclose how much they earn on a loan, nor to disclose all available options. It is up to the borrower to ask for all the options.
Mortgage brokers offer a single access point to a broad range of mortgage offerings.
They can help those with special needs find the best mortgage products, and make it easier to compare mortgage products. They set their own profit margins which are usually 1% – 2.5%, negotiable, and sometimes paid by the lender. Brokers are required to disclose their rates and who is paying. Another benefit of brokers is that they handle the paperwork and interactions with lenders.
When considering options, try to compare apples to apples, and inquire about all variables that affect a loan. Check rates, lock in fees, points, closing costs, prepayment penalties, turn times for underwriting, appraisal, and start-to-finish loan processing. Most importantly, let lenders know that you are comparison shopping and see what they can do to earn your business!
If you’d like guidance in choosing a loan option, please fill out this form to schedule a time to talk.