Where do you believe you can receive the best mortgage terms: direct lender or mortgage broker?
Direct lenders would include banks or large mortgage lenders. Mortgage brokers are independent firms who cintract with those direct lenders to receive "wholesale rates" so that they can offer similar terms to retail borrowers.
What has your experience been and why?
What relationship do you seek in a mortgage originator and why?
Clarification added 11 months ago:
These are great answers (twelve so far) but few are addressing the final question:
"What relationship do you seek in a mortgage originator and why?"
Good Answers (10)
I think Brokers are a better bet. Even though there are sometimes other fees, I've seen them give better deals on bank loans than the banks. You have to look at the whole picture to really see what's best, not just the interest rate.
My personal experience, and observations of client experiences, is that mortgage brokers will establish and maintain a deeper relationship with their client.
Bill P
Bill the Mortgage Guy www.billwow.com
Best Answers in: Personal Real Estate (5), Retirement and Estate Planning (1)
As a direct lender (portfolio lender for most of our offering with a few loans being sold to the secondary market for FHA and VA loans) I have seen changes in the common offerings. You might expect me to say "go with a banker" but read on, especially the the advice in last paragraph. We play fair at this company.
At one point the brokers had most everything the banks had with very similar rates. Now it seems the brokers have more speciality type products but with higher rates and fees.
My advice to borrowers is to shop around and find a lender you a comfortable with who has the product you need at a good rate. That may be a bank or may be a broker depending on your transactional needs and circumstances.
In most cases, I would say mortgage brokers provide the best rates, because they evaluate a broad spectrum of lenders' in relation to the buyers' needs and credentials. In addition, in some cases, such as Manhattan, mortgage brokers also contribute $300-1000 to the closing fees. Mortgage brokers do get discounted rates and pass some of those discounts on to the customers. In addition, some mortgage brokerages are also direct lenders, and this is something customers should know going in.
Unless you are really savvy about financing, I recommend going to a mortgage broker rather than trying to do it yourself or going directly to your current bank. You should get a recommendation from a real estate broker who has worked extensively with the mortgage broker. My customers have always been well-served by the mortgage brokers I recommend and have used them again when re-financing.
I believe Mortgage brokers are going to be the better bet when searching for a home loan. First, a broker can shop your needs to several different investors and find a loan that works perfect for you. Direct lenders are limited to the products their bank offers. Additionally, I've found there is a much higher turn over with direct lenders than brokers and in turn I've worked with direct lenders who were less than impressive when it came to knowledge and experience.
Most importantly, as others have stated. You need to work with a lender or broker you feel comfortable with, has a strong reputation, and extensive knowledge of and experience in their field. If you find someone who fits that criteria, whether they're a broker or lender, you'll be just fine.
The question presumes that all direct lenders are the same and that all mortgage brokers are the same -- practices vary greatly. My suggestion is to obtain recommendations from people familiar with financing in your general area (typically, your real estate agent should be a valuable resource) and then make your selection from those.
My bigger concern is having a loan officer who will follow through and get things done. We have experienced a direct lender which lost the signed documents (signed at one of their branches!), creating unexpected delays at closing, as well as another one who simply "lost" the loan in their system and it never reappeared!!
Any company -- direct lender or mortgage broker -- is only as good as their loan officers, loan processors, and underwriting staff. One does not want to hear that "the loan is in processing; we won't know anything for three or four days" nor that "the loan is stuck in underwriting" -- and the loan officer doesn't know what is causing the hold-up.
By talking with a local real estate agent, they should be able to direct you to loan officers who have a proven track record of excellence.
For example, I recently assisted clients who had been through a refinance in the past few months and then bought a new home. The refinance was with an out-of-state mortgage broker, after not being satisfied with responses from three direct lenders they had contacted. When time came to buy a new home, I suggested Sean Boyd of Resource Lenders in Fresno, CA -- and we closed escrow two weeks after acceptance, despite some credit issues which should have been cleared up by the previous loan officer prior to the refinance loan. My clients said they had been impressed with Mr. Boyd during the process (compared to the previous loan officers with whom they had dealt); when he made the extra effort to clear up the credit issues -- and even spoke directly with those involved to speed up the process -- my clients said they were even MORE impressed. Since their loan processing and loan underwriting is done in-house, it is easy to know what is happening; with Sean Boyd as the loan officer, he keeps tabs with the processor and underwriter while they are working on the file, so that any items they find can be dealt with immediately -- while the file is "working". It works SO much better for us real estate agents that way!
Yes, a great loan officer is prized by real estate agents, as they can make the purchasing process much smoother, resulting in a better -- and happier -- experience for our clients.
What do I want in a mortgage originator? Someone whose upfront list of charges match those at closing (amazing the number of "add ons" which can mysteriously appear at closing, especially when the initial costs seem lower at the beginning -- another reason why I like using those I know have accurate costs and charges given to the client at the start), someone who is responsive to calls and inquiries, someone who is easy to reach, someone who keeps me informed on the loan progress, someone who deals with any issues or concerns immediately, someone who is tracking the loan, someone who puts the clients' interests first, someone who truly cares about the clients -- and will not put them in a loan which they cannot afford.
Had clients who went with "a friend" who had such a low-cost loan -- only to find at closing that there were many additional charges, the PMI was incorrectly figured, and the monthly loan payment was actually much higher than that quoted by someone I had recommended -- you can 'get burned' just by shopping for the lowest initial estimate! And, yes, it has happened to me, too, when I refinanced with the lender who held the mortgage -- the 'no cost' loan was 'no cost' upfront, with many additional fees and charges added to the loan amount. Usually, your loan costs end up being about the same -- so select a good loan officer, who will work on your behalf.
Debra K also suggests these experts on this topic:
I've worked in both wholesale and retail lending as well as for a mortgage brokerage. Usually well-established mortgage brokers can provide better rates and terms for two reasons. 1) Banks typically offer more favorable terms to mortgage brokers because is costs banks less when they don't have as much direct overhead. 2) Mortgage brokers have access to a substantial number of banks and can pick and choose the best of the best for their clients.
An ideal mortgage originator will be able to clearly communicate to my clients the benefits of particular loan over another, or why it makes financial sense to choose one rate vs. another. He will provide several options for my client to consider.
A good mortgage broker will also have a broad understanding of the current financial market and how that may effect my client's loan terms.
Above all, a good mortgage broker will keep the buyer's real estate agent updated to any potential snags or delays. He won't wait until the last minute or be unavailable to take calls on the day the loan is scheduled to fund.
I have shopped rates since the first of December. The larger lenders have competitive rates, but I have found large coorespondent lenders to be more competitive with points and closing fees. Based on the GFEs I've seen, correspondents are charging less in app/origination fees and points with the same rates as the big lenders.
The eternal mortgage contradiction!
Common sense would favor the direct lender.
Experience favors the mortgage broker.
Current circumstance belies common sense and experience.
It is now as it always has been it’s not the source of the money that’s important, but the personal integrity of your loan originator.
Brokers will have more sources and programs to draw on for you than the direct lender, but the realty is you the consumer only need one program.
I know I’m redundant, repetitious, a broken record, or an endless loop recording, but for nearly forty years I’ve recommenced shop for your loan rep/originator! It’s not the original quote that matters it’s the loan that closes that is important!
Merry Christmas, Brian.
Bill
Jay M
Downtown Vancouver First Time Buying Specialist, Crosstown Condo Specialist, Atelier Vancouver Building Specialist
I have had much success with direct lenders as opposed to Brokers. I think the Brokers position works in theory, but a direct lender from my experience holds more weight in the credibility department because they have the in-house relationships in place to make certain situations come to light. Especially if its a tough finance.
Mortgage brokers jump from one door to the next, also dealing with smaller credit unions etc. The bigger banks with the direct lenders have more room to move and manipulate a situation to the benefit of the borrower because they have that leverage when dealing with a large institute.
I put direct lenders up against brokers a number of times at the start of my career. This is why through 100% success of the direct lenders I have decided to strictly recommend them with confidence to my clients. My clients want and deserve the cheapest rate, piece of mind from there lender that they are secure borrowing from them and the best customer service in the market.
Each to their own, but thats my two cents!
PS. Go to the link below from my blog, visit my December 15th Blog post. These rates show you what I mean and the customer service to go with this is unsurpassed!
Links:
Wilton A
Principal Research Scientist in Transportation Safety
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Brian, you've already gotten a plethora of answers on the first question, so I'll address only the last. When I was aggressively buying real estate for investment purposes, I sought a long-term relationship with a mortgage originator. I did this because I knew I was likely to find other deals and I didn't want to spend a lot of time educating my lender about me, the types of deals I pursued, and why it made sense to invest in those deals. While shopping around willy-nilly can sometimes yield a good deal, a relationship has the additional benefit---even with slightly higher rates---of allowing for less haggling about terms and conditions.
More Answers (9)
The best terms and pricing comes form direct lenders. Many brokers have fees attached that direct lenders don't. Honesty and helpful service to my clients (Realtor) is what I look for in a lender. They must explain the process thoroughly to my clients and have no hidden fees!
We have a comarketing agreement with Wells Fargo for a few years - at the beginning we were frustrated that mortgage brokers could get a better deal from Wells than their reps could - Now it is completely the opposite
Josh C
General Manager at Web Industries; Itinerant Writer; and Decent Little League Coach
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Hi Brian,
In my experience, mortgage brokers give you a better deal, since they can scan the whole market. I also had success with Lendingtree.com.
Josh.
Since, I am a Mortgage Broker, I am going to say Brokers. I have had too many customers from local banks and lenders come in with rates that were sky high and I ave been able to refi them back to a more normal level
Dave Woodson
An experienced and reputable mortgage broker will evaluate your situation and then look to see which lender will be most suited to your needs. A direct lender can only compare your situation to their needs (policy). I have been a mortgage broker for over 25 years and my goal has always been to put a customer with the best possible loan product, not the one product that a lender is pushing at a given time. You know your Mortgage Originator is in business to sell mortgages, but you should feel that your needs and concerns are being met.
Links:
Hi Dan, I think it depends upon the broker and the banker. I have seen clients find opportunities through brokers they could not have found through a direct lender. However, it is important to note a direct lender has more control over the process. Handling the underwriting process in-house is a huge bonus, particulary in this mortgage climate.
Mortgage brokers should be able to, in most cases, beat direct lender deals. Brain, what you have to understand, and perhaps other folks here as well - is that direct lenders have 95% of the same fees that brokers have except they pad them into the rate. At this point in time, brokers have access to wholesale rates between 3.95% - 4.5% - while banks are in the 4.5%+ range from what I have seen locally. However, individuals with private banking relationships usually will be able to get the best deal through a direct lender. Another point to take into account is the fact that while the broker ends up getting a fee for doing the deal; often times they are able to use what is referred to as yield spread (where the bank pays the broker by increasing the rate) for compensation; furthermore it is noteworthy that in these low interest rate times, it is possible for the broker to get paid using YS and still have a lower APR than a direct lender.
However, you want to speak with a broker and ask them what the difference is between them and any other local brokerage. Most mortgage brokers have the access to the same lenders, which to the end-user has no true value proposition. The key to a successful brokerage is the ability to secure sources of funding that lend below the major wholesale lenders (i.e. Countrywide/BoA, Taylor Bean, ING, etc..). We have strategically aligned ourselves with several wholesale outfits that fit this description and our business has increased dramatically since. Cheers!
I believe you generally get better rates from a direct lender such as BofA or Wells Fargo. But things change from time to time. 1 year ago when I bought my condo on the Big Island I completed purchase thru BofA which was about 3/4% lower than WFB.
As a service to buyers, I offer a spreadsheet of up to 5 mortgage options when purchasing. Quite frankly, in my particular area (NE Ohio) and depending on the type of financing, I often find there is a mortgage broker out there willing to compete equally with the banks.
Best advice, provided you know the right questions to ask, shop around.
Clarification added 11 months ago:
When you refer to relationship in a mortgage originator, are you asking what characteristics we look for in an originator, or what level of support and service is expected and ongoing with an originator?
