In the past, when you wanted to buy a home, you simply
turned to your local bank or credit union for a mortgage. Today,
there are many home-financing providers that are competing for your
business. How do you choose a lender?
A mortgage bank is a direct lender that reviews your
mortgage application and makes the decision to lend you money. The
bank will then probably sell your loan on the secondary market. You
know you are dealing with a mortgage bank when the lending agent is
the one to make the mortgage approval.
A mortgage bank is a reliable source for a mortgage.
Local mortgage banks are regulated by state and federal agencies and
are fairly trustworthy. It helps if you have ties to the bank to
With a mortgage bank, you have someone local that you
can deal with. You can walk into their office, sit down and talk
things over. As the loan originator, the bank usually charges lower
fees and offers you better terms based on your loyalty and business
with the bank. This is often a fast, hassle free way to obtain a
mortgage if you have good credit.
But mortgage banks offer limited programs. They are
competitive in their rates, but don't offer many exotic, high risk
mortgages. If you are looking for a special type of mortgage, they
may find that you have to talk to many lenders to find it.
A mortgage broker is the middleman that connects a
borrower with the loan products of hundreds of different lenders.
The broker looks to match you up with the mortgage that best meets
your needs. Once your loan is approved, you will deal directly with
the mortgage originator and not the broker.
Brokers give you access to a wide range of different
programs and lenders. You may find a better mortgage through a
broker than you would on your own. The broker will help find the
best national or regional lenders that are likely to approve your
mortgage. Chances are that you will get a more favorable loan rate
in less time.
You should ask questions and pay attention, because
many mortgage brokers increase their profits by writing hidden costs
into your loan. Some receive kickbacks for getting you to take a
higher interest mortgage than you qualify for. Mortgage brokers are
not subject to licensing and regulation in many states.
Banks, thrifts and credit unions
Most banks and financial institutions offer a limited
mortgage menu, comparable to mortgage banks. They typically keep
their mortgages in house or sell them on the secondary market. With
a local bank, you receive the ability to walk in and deal with the
lender in person. But your options are limited, so you may need to
shop around to find the right mortgage for your situation.
Home builders and real estate agencies
Many home builders and real estate agencies offer
mortgage services to make it easier on the homebuyer. These
affiliated companies may be mortgage bankers or brokers. They are
convenient for most buyers.
Mortgage lenders are now all over the internet. They
offer fast, easy mortgages at fairly competitive rates. Some are
online versions of traditional lenders, while others are only on the
So how do you choose?
You may benefit by using one mortgage source over
another. It all depends on your credit history and your financial
If you have excellent credit and have all of your
finances in order, you can turn to any lender that offers you the
best rates. However, if you are self-employed or don't want to share
your income or asset data with a lender, you should turn to a
mortgage broker. If you are buying your third or fourth home, you
may look at the internet for the best rates. But make sure that you
know your mortgage options and finances first.
If you are looking for an adjustable-rate or a
one-on-one relationship with a lender, a local bank or thrift may be
perfect for you. If you want a quick, no hassle mortgage no matter
the cost, turn to your real estate agency lender.
Smart ideas for working with lenders
Get recommendations. Ask your family and friends for
suggestions and referrals. Most will be more than willing to tell
you their good and bad lending experiences.
Check credentials. Banks, credit unions and mortgage
bankers are regulated by either your state's department of banking
or division of real estate. Check to see if the lender is in good
standing with the state. Mortgage brokers may or may not be
regulated. If not, check with the Better Business Bureau and the
National Association of Mortgage Brokers to see if they have a clean
record. If you haven't heard of the lender and they aren't well
known, make sure you check them out. Sometimes, all it takes is a
quick internet search to find comments on the lender.
Research the issues. Learn about mortgages and ask
plenty of questions. If something doesn't seem right or doesn't make
sense, speak up. A broker might be trying to pad closing costs or
add extra fees. You won't know if you don't pay attention.
Be careful online. There are lots of nice looking
mortgages on the net, but make sure you are dealing with a reliable
lender. Don't give out any personal information until you are sure
that it will be safe.
Peak seasons bring out the predatory lenders, so
be wise when looking at rates or quotes. Unscrupulous lenders will
slip in bogus rates or extra costs in hopes that you won't notice.