Who do we borrow money from to buy a house? We all know them as mortgage lenders, but what kind of institutions, companies or organizations are they? The answer is just as versatile as the question: your lender could be a bank, a credit union, a life insurance company, a private company or a trust company. There are virtually thousands of lenders in the United States, and you really need to do your homework well, before you choose one.
There are small, average-size and big fish in the sea. And so is with lenders: some are very small institutions like local banks that target the real estate market in a specific region; others are average-sized lenders that provide mortgages to a whole state or region, and finally, there are the “big fish” that provide nationwide loan services.
A special category of lenders is that of institutions affiliated with federal or state agencies. They seem to provide the safest mortgage options to borrowers, and by ‘safest’ we should understand ‘in control’ of their loan. Lenders like Freddy Mac or HUD are examples of federally-affiliated lenders who guarantee real estate loans.
Nevertheless, rushing into borrowing from a fed-affiliated lender is not a good idea. You need to get the best interest rate possible and the lowest loan fees: this is the ultimate goal for shopping for a loan.
Mortgage broker or lender, who are you working with?
A mortgage broker does not lend you money directly. They are intermediaries. You submit an application with them, and it’s their job to find you a lender. You might say that you can handle that on your own. And you may be right, but finding a lender often proves a tough job for some borrowers. Brokers have access to a large number of mortgage opportunities, and they could really find you the best deal there is. Shopping around works with brokers just like with banks. Submit your application with several brokers and see who gets you the best deal.
Sometimes it’s not possible to clearly separate the broker from the lender. This happens because some financial institutions operate in both qualities. This is one big thing for you to know. Who am I working with? Broker or lender? Because, for the borrower, this difference translates in higher fees. The broker is paid in points, with 1 point being the equal of 1% of your loan amount. Before you sign a contract with a broker, think about how much you are ready to pay to get the loan. If the borrowed amount is $200,000, are you willing to pay $2,000 out of your pocket?
Negotiation could get you really far when it comes to getting a loan. An offer from the lender does not mean it’s done. There is still time to move around and negotiate: the deal they offer you tomorrow could be better than the initial one. Rush decisions could be costly! Lenders and brokers receive a compensation for loan generation, that’s why you can make a better deal if you negotiate. The situation holds true for both adjustable-rate and fixed-rate loans.
In order to avoid confusion and get lost in the maze of information received from various lenders or brokers, it is a good idea to ask them to put down all the costs in written form. Once you have the figures, you may be able to ask for the reduction of certain fees or for a lower interest rate.
The right lender?
There is no definition or general guide to help you make the best deal. However, there are steps that you should not skip when applying for a loan.
Shop around! Submit your application with several lenders, and wait for their offers.
Compare those offers!