Bank, credit union, broker, or direct lender? What is the difference, and where is the best place to get a home loan? Having worked for a national bank, a broker, direct lender, and having interviewed with a credit union, I can provide some insider information. Here are some facts most consumers don’t know.
A mortgage broker shops wholesale lenders to find the best option for your loan. Think of a travel agent shopping airlines for you. Some people assume that using a broker costs more–a middleman fee–but that is not true. Because brokers go to wholesale lenders, they can often find you cheaper financing than if you go directly to your retail bank.
Brokers are required by federal law to obtain a loan officer license from the National Mortgage Licensing System. This means they must attend classes in lending law and requirements, then pass a rigorous test that about 30 percent of applicants fail. They must also be fingerprinted and pass a background investigation and credit investigation.
A direct lender uses their own money to lend rather than broker out to wholesale. Using in-house underwriting is sometimes an advantage for closing faster and for getting a more streamlined approval.
Loan officers working for a direct lender must obtain their NMLS license, passing all tests and background checks, the same as for a broker.
A bank also uses their own money, but typically, they do not close faster or easier. In fact, the large banks are usually slower and have tougher underwriting requirements to pass. It is not unusual to be asked for more documentation in the 11th hour, requiring getting an extension on the loan.
Loan officers at a bank do not have to get a NMLS license. They do not have to pass an NMLS test. They do not get fingerprinted or have a background investigation. I personally know of a case where a woman who was under investigation for loan fraud waltzed into a big bank and was promptly hired.
Everything above that applies to a bank also applies to a credit union. Some credit unions have excellent pricing and service, but others have horrific service. One popular West Coast credit union that I interviewed with has a bad business model. They have application takers in their branches, then those applications get passed on to a regional loan officer who handles dozens of branches. So the person you met with in the branch is not your actual loan officer, nor does that person have any training in mortgage loans. I’m sorry, but that is not my standard of service when it comes to something as monumental as buying a house.
FULL SERVICE MORTGAGE LENDER
I’ve saved the best for last. A full service mortgage lender has their own money to lend (like a direct lender) but can also broker out when needed. This gives the most options and the most flexibility.
Loan officers must meet all NMLS licensing requirements and pass all investigations and checks.
Personally, I work for a full service mortgage lender, and I like having more choices for my clients. I am state licensed in WA and CA, so I have taken state courses for both states, and have passed state tests as well as the big national test. I was fingerprinted twice and have passed all background tests, including an annual credit investigation.
Since the release of new lending laws, commonly called TRID, on October 3, 2015, there is no more GFE (Good Faith Estimate) or TIL (Truth in Lending). Both of those forms have been replaced by the Loan Estimate (LE). But, you cannot get a LE without first having the address of the property you want to buy. So how do you shop for a home loan at the pre-approval stage?
Here is a quick and easy summary of the three steps I recommend.
1) Call three lenders and ask for an Estimate Worksheet.
This is the new upfront GFE. Depending on the lender, they might call it an Initial Fees Worksheet, Fees Worksheet, or simply use an Excel spreadsheet. Either way, this form shows the interest rate, monthly payment, and fees so you can see the cost of the loan.
2) Speak with the loan officer, compare pricing, and choose your lender.
Notice that I did not say email the loan officer and make your choice. Don’t be lazy! This decision is too important for you to hide behind your screen. Pick up the phone and have a real conversation with the loan officer, because you need to get a sense of whether or not this person is honest, communicates well with you, will provide good service and updates throughout the loan process, and so on. You cannot get all that in an email.
3) Proceed with your pre-approval.
Now is the time to submit your income and asset documentation, photo ID, as well as other paperwork so you can get a good, solid pre-approval letter on company letterhead. You will need this in order to present an offer on a property. Give your pre-approval letter to your real estate agent.
That’s it! Now you are ready to meet with your Realtor and shop for homes.
With a closing date in place and the PSA in hand, your loan officer will proceed with processing your loan. He or she will send you Loan Disclosures that include the Loan Estimate as well as other information required by TRID law. You will sign to acknowledge receipt and work with your loan officer through to closing.
If you happen to be buying a home in California or Washington, I would love to be your loan officer and mortgage advocate. I work for Envoy Mortgage, a full service mortgage lender. (We have our own money to lend as well as work with the wholesale division of other lenders such as Chase, Wells Fargo, Caliber, and others to get you the best deal.) My NMLS # 1284134. Envoy is a Fair Housing and Equal Opportunity Lender.
One mistake people sometimes make is closing off their credit cards so that they have no open accounts.
With no open credit card accounts and all your auto loans, student loans, and other installment debt paid, your credit score will disappear. This is because the credit bureaus have no way of rating your credit when you have no credit!
I believe in living debt-free. However, it is imperative that a person keep two to three credit cards open and active in order to qualify for the best mortgage at the best price. Otherwise, you could find yourself being forced to take a higher priced mortgage — or pay all cash for your house.
For a conventional loan, lenders want to see three trade line accounts. A closed installment loan (auto, etc.) is acceptable if it is not more than three years old.
For an FHA loan, lenders want to see two trade line accounts.
You do not need to carry a balance from month to month. In fact, it is better for your credit score if you pay off the balance in full each month and avoid paying interest. You can use the credit card minimally once a quarter to keep it active and accruing credit score points.
I urge you to pass on this information to folks who have dug themselves out of debt and then make the error of closing down all their credit cards. People get so sick of being in debt, that when they are finally free of that burden, they shut down all their accounts. THIS IS A BIG MISTAKE! Unless you are financially independent and will be paying cash for your houses, you need some open credit and a credit score to get a good mortgage.
I love California, and I am excited to announce that I am licensed to do mortgage loans in the Golden State. Whether you are a first-time home buyer, a seasoned home buyer, or a home owner refinancing, I can help you get the best loan for your situation.
Here are some of the loan programs I can help you with:
* First-time home buyer FHA loan with 3.5% down or with gift money for the down payment.
* Grant money for the down payment on an FHA loan with no pay back whatsoever. A true grant, from a private bank. No neighborhood restriction.
* Conventional loans: 30-year fixed, 20-year fixed, 15-year fixed, 10-year fixed rates.
* 5/1 ARM: fixed for the first five years, then adjusts annually. A good loan for people who plan to keep the home for five years or less.
* VA loan for U.S. Veterans
Getting Pre-Approved is No Cost
There is no cost to get pre-approved and/or to find out how much house you qualify for. Let me know what you want, and I will take it from there.
What Does It Mean to Be “State Licensed”?
Loan originators who work for banks and credit unions do not have to be state licensed. The CFPB assumes the bank will vouch for their integrity and competence. However, mortgage brokers and direct lenders (such as myself) have to pass multiple hurdles in order to do business in California. Here are the requirements we go through that those at banks and credit unions get to skip over:
* 20 course hours plus additional class hours for California state law.
* Pass both a national test and a CA state test.
* Get fingerprinted and have a background check done.
* Have a credit report pulled and checked for personal financial responsibility.
* Be approved by the CA state authority.
You might say that state licensing ensures a higher level of scrutiny, which means more security and peace of mind for you.
Please feel free to contact me about your mortgage questions or financing needs via the Ask a Question page here.
Looking for a Recommendation for a Licensed Real Estate Agent?
I have worked with fine real estate agents in California. If you would like my recommendation for an agent who will work hard and put YOUR best interests first, send me a message here.
1) Stay in town during the loan process.
This is not the time to travel so that you are unavailable to provide additional documents the underwriter might ask for. If your vacation to Europe was pre-planned and cannot be changed, then allow ample time after you return home before the closing date. It is unrealistic to think you can check out during the loan processing and come back to sign one day later.
2) Leave your money where it is.
Do not transfer funds from one account to another during the loan process without your loan officer specifically instructing you to do so. In addition, do not transfer funds the two months prior to applying for a mortgage. The reason is because doing so can cause a paper-trail nightmare for you and the underwriter.
3) Leave your credit as is; open no new accounts.
If you open a new credit card or installment loan during the loan process, you are potentially sacrificing your home. Don’t do it! Although your credit has been checked and approved, it is likely your credit will be checked again right before closing. If new accounts appear, then your debt ratio and/or your credit score could suffer.
One first time home buyer decided to buy new appliances for the new home during the loan process. When her credit was re-checked, the new Sears account showed up and the payments put her debt ratio over the line. Her loan was denied! In order to proceed, she had to return the appliances and prove with receipts that she had done so. How embarrassing, right?
The same goes for buying a new automobile. Don’t even think about it! Your priority must be buying the house.
4) Write your purchase offer contingent on a home inspection.
Waiving a home inspection is a dangerous move. Inspectors are paid to find fatal flaws and major problems that are not obvious to the eye. When you visit a home, do you climb up on top of the roof? Do you crawl under the house? Do you inspect the electrical wiring, plumbing, water heater, sump pump, etc.? That is what your home inspector is for. It is an important step that prevents you from having to shell out thousands (or tens of thousands) of dollars later.
5) Obtain your own buyer’s agent.
Calling the real estate agent listed on the for sale sign is a colossal mistake. The same goes for using the agent that is hosting the open house. When you use the seller’s agent, it is like using your opponent’s attorney in a court of law. Who would do that?! The seller’s agent is required by law to get the highest price and best terms for the seller. Dual-agency is not in your favor!
Since the seller pays for both the listing agent and the buyer’s agent, it is free to you to have your own expert agent representation. Therefore, there is never a reason not to do so. You do not save money or get a cheaper price on the house if you use the seller’s agent. Be smart and get your own agent representation.
If so, I have good news for you. After looking at local banks, credit unions, and other lenders, I have joined VITEK Mortgage Group, a lender with a stellar reputation. As a mortgage loan officer, I can shop the wholesale divisions of lenders such as Wells Fargo, Chase, Ditech, Caliber, and more — as well as VITEK’s own line of loan products.
It is important to me to get the very best loan at the very best pricing available for my clients. Having the ability to shop without being limited to only one lender’s loan products gives me the ability to do that. If I worked for a bank or credit union, I would be limited to their loan products only — and when it comes to a mortgage, it is NOT a “one size fits all” situation.
If you want a seasoned professional who wrote the book on mortgage rip-offs and money savers to do your loan shopping for you, then I am your gal. Not only that, but I go another step in helping you get a good title and escrow company, because now in 2015, too many title and escrow companies are piling on the junk fees and over-charges.
As a loan originator for VITEK Mortgage Group, I can extend their Peace of Mind Guarantee:
* Guaranteed On-Time Closing
* Guaranteed Real-Time Status Updates
* Guaranteed Best Value
VITEK stands for Value, Integrity, Teamwork, Excellence, Knowledge.
That is pretty much everything you and I want in a company.
I am licensed in WA state and will soon be licensed in CA as well. (I have met all the requirements for California and am awaiting on the Dept. of Business Oversight for their acknowledgement.)
Please let me know how I can help you with your home purchase or refinance.
NMLS License # 1284134
A Missouri couple thought they were having their $680,000 dream home built in the perfect location. They purchased a lot in the gated community of Ocean Hammock, an exclusive community that is accessible by beach or air.
As you can see from the photo, it’s a three-story home with balconies from which to enjoy the impressive view. What a vision! The only problem is that Keystone Builders constructed it on the wrong lot, not the land Mr. and Mrs. Voss bought.
How could this happen? East Coast Land Surveying incorrectly marked off the stakes for the home — and didn’t catch their error during any of the three surveys they conducted during the construction process.
The mistake was finally caught by a different surveyor working in the area, but only after the home had been rented out several times.
“We are in total disbelief,” the Vosses told local media.
Both the Flagler County Home Builders Association and the Flagler County appraiser said that houses built on the wrong property “happen more often than people think.”
Perhaps a trip down to the construction site early in the process is a prudent step for home owners to take. In the case of the Vosses, it will be interesting to find out what happens next.
Source: Housing Wire
The one who holds the money makes the rules.
If the underwriter says your debt ratio is too high, you will be denied. (And be forewarned: the spreadsheet you made showing you can afford it means nothing. The underwriter will not give it a moment’s glance.)
As I mentioned in a previous post, your loan officer can calculate your debt-to-income (DTI) ratio for you. But what if you want to do it yourself? What if you want to double-check the loan officer? Here’s how it’s done.
1) Take your gross income (before taxes and other deductions). Use the highest figure on your W-2 forms. You must have been employed in the same line of work for the last two years in order to count the income. If you have a brand new part-time gig, it won’t count. If you have brand new bonus income, it won’t count.
For self-employed people, use the Adjusted Gross Income near the bottom of page one of your tax returns. Again, you must be self-employed for the last two years. If you have a new business, you cannot count your self-employment, even if it is in the same line of work as your previous W-2 job.
2) Add up your monthly outgo. Use all of the minimum payment obligations that show on your credit report. If you pay your entire credit card bill each month, you do not use that balance in your outgo; instead, use only the minimum payment required.
Do not count expenses that do not show on a credit report such as phone, utilities, cable, gas or bus, or grocery.
Add in the new proposed mortgage payment for the house you want to buy. Include principal, interest, taxes, insurance, and monthly mortgage insurance if putting less than 20% down. (You can use the easy calculator at MortgageHelper.com here.)
3) Divide your total outgo by your gross income. This is your DTI. Most mortgage lenders want to see a max of 38% DTI, but some will go higher if the rest of your application is strong. The highest I’ve seen is 49% DTI with a 800 credit score and significant cash reserves.
For example, if your gross income is $5,000/mo. and your outgo is $3,000/month:
5,000 divided by 3,000 = 60 DTI. That is too high and will be denied.
You would then need to pay down debts and/or choose a less pricey house.
By knowing your price range, you avoid the disappointment of being denied. And again, if it seems too complicated to calculate yourself, all loan officers at mortgage companies and banks are happy to do it for you. They love using their handy HP calculators, so don’t hesitate to ask.
Happy house hunting! It’s a good time to own your own home.
That’s an interesting question, but more important is how do you avoid paying those over-priced closing costs, no matter what state you are in?
It is my pleasure to tell you that I see Good Faith Estimates from all over the U.S., and from all types of lenders: banks, brokers, credit unions, and other direct mortgage lenders. None of my clients (and I expect that none of my book readers either) are paying the new higher fees stated in this report.
None! They’re too smart for that. They keep more of their cash in their own bank accounts and shell out less for inflated origination costs padded by junk fees.
Five Most Expensive States for Mortgage Fees
1) Texas: $2,280 average origination fee
2) Alaska: $2,195 origination fee
3) New York: $2,109 origination fee
4) Hawaii: $2,009 origination fee
5) Wisconsin: $2,035 origination fee
There is no reason to pay so much! This is approximately double what my clients are paying for origination in those states.
The most expensive states I see for origination are California and New York where my folks are paying about $1,200 on average. Who’s paying $2,280 in Texas? Some vulnerable folks who are being taken advantage of, that’s who. I know a good Texas lender that charges a flat fee of $900 and not a penny more.
Five Least Expensive States for Mortgage Fees
47) District of Columbia: $1,791
48) Ohio: $1,707
49) Missouri: $1,749
50) Tennessee: $1,746
51) Nevada: $1,570
Too high, all of them! I like to see the origination fee for these least expensive states at $800 or less.
How Do You Pay Less?
It’s not hard to pay less and keep more of your money in your own pocket. Simply use the loan shopping method in my books. It’s in Mortgage Rip-Offs and Money Savers and in Homebuyers Beware. Make three phone calls and ask one question. That’s it. The only change for 2014 is that instead of asking for a Good Faith Estimate, ask for a Cost Estimate, because lenders won’t give out a GFE unless they pull your credit report first, and you don’t want that.
Why Have Origination Fees Gone Up?
The report states that lender origination fees (including the admin. fee, application fee, processing fee, underwriting fee, doc prep fee, and miscellaneous junk fees) has increased by a 9% in the past year. Why?
There are two reasons.
1) New federal mortgage regulations are costing lenders more time, and time is money.
2) Borrowers have been lulled into a false sense of security, thinking that the government involvement in the mortgage industry has protected them from being ripped off (which is not true). Therefore, they neglect comparison shopping.
It’s not hard to save yourself $500 to $1,00 or even more. If you don’t want to or can’t take the time to read one of my books, then you can take advantage of my personal coaching service. If I don’t like your loan, I will find you a better one that I do like. Information is here. Watching the video testimonial is optional. Scroll down to read the details.
Only You Can Bring Down Lender Fees
When borrowers say no to the banks and mortgage companies with the high fees and choose to do their business with the good, reasonably priced lenders, they control the market. The over-priced lenders will be forced to lower their fees or starve. It’s that easy, and you have the power to do it.
If you know someone who is considering buying a home or refinancing, please do them a favor by passing along this information. Thank you.
To see my source for the annual Bankrate report, go here.
Emily Johnson found the perfect house for her family. Four bedrooms, three baths. The master suite had a garden Jacuzzi tub, just what she needed after a long, hard day of work. There was plenty of street appeal, too. After hours of looking on the Internet, she’d found The One.
Her next step was to contact the real estate agent who was listing the house and ask to see inside.
Emily fell in love.
That evening, she brought her husband out to see the house, and he agreed with her that it was just what they wanted. They asked the real estate agent how they could make an offer. And that’s when everything fell apart.
You see Emily, like so many other house shoppers, had done everything wrong — starting with her initial search.
What Went Wrong?
When you want to buy a house, your first step is not searching the Internet for what you want. Your first step is to find out how much house you can afford. That way, you can tailor your search to what is appropriate and realistic. What’s the point of falling in love with a house that is out of your price range? Why set yourself up for disappointment?
A pre-qual is a quick evaluation by phone. The loan officer will ask you a couple questions about your income, outgo and down payment, then give you an estimate for the loan amount and home price you can qualify for.
No credit check is needed. To make sure your credit report is not pulled without your authorization, do not give out your social security number.
Once you know your true price range, you can cruise the Internet to your heart’s delight. By looking at homes you can afford, you set yourself up for success and avoid heartbreak.