Should I Borrow Money From A Mortgage Broker Or A Bank
When you want to purchase a home for the first time or repeat the process you’ve done before, you might start thinking about where to get your financing. The choice is going to a bank and speaking with a home loan specialist or getting financing through a mortgage broker. The problem is, you really don’t know the difference, but still want the best deal.
Purchasing a home is a big undertaking, you have to come up with a down payment in the majority of cases, have sufficient income, and have a bit of cash stashed in the bank. Lenders like their borrowers to have a steady paycheck with the same company for a few or more years, and ones which can handle the closing costs.
In addition, banks do pay close attention to any potential borrower’s credit, which includes in many instances, a “soft” inquiry just a few days before closing. This second credit check is conducted to find out if the borrower has opened a new line of credit or made a purchase, like new furniture. In addition, banks check their borrowers’ checking/savings account balances to be assured there’s enough cash for closing costs.
What to Do Before Applying for a Loan
By now, you’ve probably heard that you’ll need to come up with a down payment. These can range from as little as 3 ½ percent to 5 percent, up to between 10 to 20 percent. This depends on your income, your credit history, and your assets. It also depends on your debt-to-income ratio, which is the difference between your monthly obligations and your gross monthly income.
“A mortgage broker is basically a middleman. Brokers work with a variety of lenders to find loans for clients, but do not lend out money directly. That’s the role of a mortgage lender, the entity that supplies the funds going to the closing table. The lender could be a mortgage bank, which specializes in mortgages; it could be a large commercial bank, a community bank or a credit union. The largest mortgage lenders, by share of originations, according to the publication Mortgage Daily, are Wells Fargo, JPMorgan Chase and Bank of America.” --New York Times
The home purchase process should actually begin several months before filling out a mortgage application. First and foremost, is to pull your credit reports from all three bureaus, which can be done for free once per year by going to Annual Credit Report.com.
Dispute any inaccuracies by mail, not online, and dedicate one sheet of paper to each dispute, including any proof. In addition to dealing with any credit issues, start paying down any debts. This will lower your DTI which, in turn, will lower your monthly mortgage payment. Last but not least, you should save up not only for a down payment, but have at least two months worth of principal, interest, insurance, and taxes.
Banks versus Mortgage Brokers
Once you’re in a position to apply for a home loan, you have your choice of going through a mortgage broker or directly to a bank or credit union. There are differences between these options, and each has its advantages and disadvantages. Here’s what you need to know about each:
- Customer service for your mortgage. If you go through a mortgage broker, you might end up with a lender that’s not local and also without a local branch. Should this be the case, you’ll have to deal with any problems or have questions answered over the phone or perhaps through email and chat.
- Fees that you pay directly or add to the loan. There’s no such thing as a free lunch, and no matter which you choose, you’ll pay fees. The mortgage broker’s fee might come directly out of your pocket or worked into the loan. Banks charge certain fees up front or also put them into the loan.
- Loan product availability. Banks will only have their own products, while mortgage brokers work with dozens, scores, or even hundreds of lenders with all kinds of home loan products. Though, it should be noted that if you do go to a bank or a credit union, that institution will attempt to fit you with the best product.
- Questions, problems and solutions. Another difference between a local bank and going through a mortgage broker who gets a non-local lender is location. If there are any problems or a question about the property, it will likely take longer with a far away lender.
In the end, you want to get the best deal and it’s up to you which to choose. As you can see, there are pros and cons with each, but that’s part of the financing process. Of course, the best thing to do is a bit of homework and that will help you to make a good decision which will best suit your situation.