How to know when to use a mortgage broker
September 30, 2009 · Tagged with Loans
But it’s also possible that consumers simply don’t know they could do better. A study for the Department of Housing and Urban Development published last year examined 7,560 30-year, fixed-rate Federal Housing Administration loans that closed in the middle of 2001. It found that when mortgage brokers were involved, borrowers paid about $300 to $425 more in fees than when consumers worked directly with lenders, other loan characteristics being equal.
“A lot of people went to a mortgage broker because they think the mortgage broker is out looking for the best deal for them,” Mr. Stoffer added. “My job is to offer very competitive rates and offer financial planning and competency.”
That, at least, is a start, but you shouldn’t limit your mortgage shopping to a single broker, and brokers don’t expect you to. Nor should you stop at just a couple of brokers. Here are three of the most important steps on your journey to home financing.
The Comparison
Shopping will be simpler if you pick a specific kind of loan and look only for that, say a 30-year fixed-rate mortgage with no points. Because rates (and terms) can change daily, take an entire weekday and make all your calls. This sounds severe, but there’s no other decent way to compare apples to apples.
Start with a credit union or two. Hit a few community banks. Then try a few big national banks nearby. Give your investment firm a shout and the bank that has your checking account, since they may offer you a deal. And if you’re refinancing, don’t forget your current lender.
Next, call a few mortgage brokers recommended by people you trust. Talking to more than one isn’t a breach of etiquette. “You’re making the largest financial decision of your life,” said Mr. Savitt of the mortgage brokers’ association. “Why not check out what everybody has got?”
The Compensation
If you find mortgage brokers who can match or beat the best rate and deals you found elsewhere, see if you can get a straight answer to the question of precisely how they are getting paid. In general, they either make money directly from you via a fee of some sort or they get money from the lender (or some combination of the two).
Brokers may tell you not to worry, that their fee comes from the bank. Or they may say they merely mark up a wholesale interest rate (that a bank offers to the broker) to retail (which the brokers then offer to you).