So I had this crazy idea a few days ago.
What if I wasn’t in the industry, knew nothing about mortgages, and was interested in getting approved for a mortgage loan?
What kind of information is out there to be found?
I headed over to Google and disabled my ad block. (it was scary, but I went for it!)
4 sponsored ads at the top of the search results – 3 of them will sell your information to the highest bidder. The other one claims to have an amazing mortgage process, but they’re racking up bad reviews faster then they’re closing loans.
A little hint here: Google Ads for the mortgage industry are very very expensive! I know, because I looked into it. There is a lot of competition and the advertising space goes to the highest bidder. Keep that in mind next time you see “low rates” being advertised with such adds – your definition of a low rate might be different from theirs!
As I read on, I get all sorts of advice, some good, some not so great, some just plain pushing the interests of the website (imagine you’re hearing this from a really old salesman, it’s more fun)
“The first step, naturally, is to check mortgage rates on Bankrate.com”.
“Check with your local bank” suggests a vice president and regional manager at Wells Fargo.
“You can find out a lot by simply calling to ask about loan programs. If the loan officer is hard to reach or gives you a hard sell, you may not want to work with that lender” says someone working for a pretty big and reputable credit union.
Then we move on to things like “get your credit score in shape”, “search online to compare mortgage rates” and what kind of questions to ask. Slight warning about an “earnest money deposit” to start the loan process, but without dwelling on it – after all, one particular lender that does that is paying for advertising on this very page.. (!)
I keep reading and the advice starts to get really confusing and overwhelming.
Too much information on certain areas, too little in others. Different articles focus excessively on certain parts of the process and even have outdated warnings about hidden fees! Really?? In such a tight regulated industry environment where even a small credit report fee increase of a few dollars needs a “Change of Circumstance” form and a re-disclosed Loan Estimate..?
Ok, I can do better.
One foot in front of the other: let’s take a look at Banks vs Credit Unions vs Mortgage Brokers, as well as the pros and cons of applying with each of them.
Once you’re done reading this, check out my next article in my Mortgage Tips Series – How to choose your mortgage Loan Officer.
1. Avoid Big Banks Like The Plague!
If you’re still banking with Wells Fargo but you’re not up to date with the news (or haven’t checked your account fees recently), you might want to read this article.
Just don’t do it!
Rates are usually higher than what you would find with a local credit union or mortgage broker, and customer service is a joke when you run into issues. All they care about is the bottom line numbers and loan officers will be hired based strictly on how much they produce (to be read as “sell”), not their experience.
The only area in which big banks can potentially excel are Jumbo loans, given that these loans must be kept on the books and serviced. Expect very tight guidelines, no exceptions and limited product options.
Did I mention the 9-5 employees that could care less..?
2. Love Thy Credit Union
If you have a perfect credit profile, there’s a good chance you’ll get a great interest rate – I might have a hard time beating it, but do give me a chance by asking for a second opinion
Some credit unions are ran more like banks, so watch out for those. Your best indication of this are various fees that feel a bit out of place compared to other credit unions (yes, I’d prefer my checking account FREE please..).
The biggest drawback with credit unions is that they have strict mortgage guidelines and limited product offerings. Their loan officers may be nice and friendly, but they rarely have the experience to deal with credit scenarios that are not “A paper”.
As an example, I’ve worked with lower credit score borrowers that were denied by their credit union, but approved through my lenders. Sometimes the fix was a simple credit score boost by paying down a specific credit card balance. Sometimes I was able to argue for an exception to a guideline.
While generally nice, loan officers at both credit unions and banks are simply friendly faces that take your application. More often than not, they don’t have the experience or knowledge to help your application. And they are 9 to 5ers, meaning outside of their working hours you’re out of luck.
3. What’s a Mortgage Broker?
Mortgage brokers come in all shapes and sizes. They generally have access to all sorts of loan products and great interest rates. If flexibility and cost effectiveness is what you’re looking for, you’ll find both of these with a mortgage broker.
- Guidelines that allow various exceptions
- Online, over the phone or in-person applications (with local brokers – which I recommend you use)
- Access to Non-Conventional loan programs (such as the Renovation Loan)
- After hours and weekend availability, as well as access to the Loan Officer’s personal cell phone number (to me, this is an absolute requirement)
How does it work? Brokers put together and deliver loan applications to various lenders, saving the lender the expense of an actual brick and mortar building to draw in customers. In return, the lender gives the broker access to cheaper wholesale lender interest rates.
A loan officer for a mortgage broker is not just a smiling face – he/she puts together your application, makes it look its best, pairs you with the right lender and is an advocate for you in front of the underwriter.
Each mortgage broker has different processes in place, as well as different compensation models for their loan officers. In general, the bigger the mortgage company, the less hands-on the loan officer is. Odds are that you’ll be passed on to a loan processor once your application is in, and that’s not always a good thing.
Personally, if I’m going to take responsibility for how the loan goes, I want to have as much control as I can over the process. I worked for a few different companies prior to settling with First Class Home Mortgage, and I got to see the good, the bad and the ugly in all of them.
I will go ahead and squeeze Mortgage Bankers in here because they’re much like the Mortgage Brokers.
Some of the lenders I work with are also mortgage bankers (also known as “direct lenders”), meaning they have both a retail side and a wholesale side. The retail side will have their own loan officers on the payroll ,and all the loans are generally kept with that lender. If a particular scenario doesn’t fit their guidelines, then they will “broker” it out to a different lender (still making a commission off the origination of that loan).
A sales pitch from such a Mortgage Banker or Direct Lender is that they have their in-house underwriting and great interest rates.
I gave it a chance and briefly worked for such a company. My take on the experience is that underwriting only depends on the quality of the underwriter (I have access to plenty of great, helpful underwriters as a mortgage broker) AND that the interest rates tend to be higher (in order to cover the costs of the physical branch).
In the end, where you get your mortgage loan is your choice - just make sure it’s an informed one:
Don’t just walk into your bank or local credit union and assume you’ll get the royal treatment.
Don’t just give out your information on websites that will sell it to the highest bidder and claim lenders will be fighting to give you a great deal.
Do a little research, and try to stay local. It’s hard to do anything when an out of state loan officer messes up your purchase contract deadlines. Regulation will only protect you from shady mortgage practices such as hidden fees – it will not protect you from your loan officer’s incompetence.
Assuming I’ve convinced you to give the mortgage broker a try, go to Part II in the Mortgage Tips Series – How To Choose Your Mortgage Loan Officer.
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