Dealing with mortgage agents and brokers
If you are shopping for a mortgage, eventually you will end up with a loan officer or a mortgage broker, and maybe both. Here’s what you need to know about what they do, and how to make sure the mortgage deals they offer are right for you.
Key points to remember
- Mortgage loan officers work for a specific bank or financial institution.
- Mortgage brokers can search for the best deals from several lenders.
- Loan officers and brokers can have their own financial interests at heart. You’ll want to shop enough to find a good deal when you see one.
- When you apply for a mortgage loan, lenders are required to provide a loan estimate, listing all costs and terms, which you can then use to compare offers side by side.
What is a mortgage loan officer?
A mortgage loan officer is a representative of a bank, credit union, or other financial institution who helps borrowers with the application process. Most mortgage loan officers also work with individuals and small businesses on a variety of other loans.
Loan officers should have a thorough knowledge of loan products, as well as banking industry rules and regulations and the documentation required to obtain a loan.
Loan officers are paid either “front”, “back” or a combination of both. “Front side” refers to fees you may see, such as processing your loan, often referred to as a settlement fee. You can pay these fees either out of your pocket when you sign the papers or by incorporating them into the loan.
If a loan officer makes money “on the back,” that means they are receiving some sort of commission from the bank for selling you the loan. It’s a load you don’t see. When a loan officer claims to give you a “no-cost” or “no-cost” loan, they are still making money but billing it “on the back.”
So, isn’t that better for you? Not necessarily. Although the bank pays the loan officer a commission, the money really comes from you, the borrower, in the form of a higher annual percentage rate (APR) to make up for lost charges. In fact, the lending institution could make a lot more money this way because it could get a higher interest rate for 30 years or more.
What is a mortgage broker?
A mortgage broker acts as an intermediary between borrowers and lenders; they don’t make loans themselves. If a loan is approved, the mortgage broker collects a set-up fee from the lender as compensation.
For borrowers, the advantage of using a broker is that they can look for the lowest rates at different banks, while loan officers can only process the rates offered by their institution, although they can. have a small margin of negotiation.
Mortgage brokers don’t always offer the best deal, so it’s important to do your own thing.
On the other hand, the benefit of using a loan officer is that you don’t have to pay broker fees, which you can bet will eventually come out of your pocket, in a way. or another.
If a broker can find a lower rate while still offering the best loan, even after factoring in their fees, they may be your best bet.
However, don’t automatically assume that brokers will give you the best possible rates. They may be comfortable with certain lenders or influenced by which lender offers them a higher commission. So even if you are considering hiring a broker, there is no substitute for shopping around, comparing loans, and knowing the difference between a great rate and an average rate.
How to compare mortgage loan offers
When you apply for a loan, the lender must give you a loan estimate, a government-mandated form that details the terms of the mortgage they are offering you. This includes the amount, type and term of the loan, as well as the expected closing costs, your monthly payment, and the annual percentage rate.
You can request loan estimates from multiple lenders and compare their offers side by side. But note that loan estimates are usually only valid for 10 days, after which terms may change.
Tactics to watch out for
As mentioned above, mortgage brokers may not always come up with the best possible deal if it is not in their financial best interests to do so.
Loan officers can have similar conflicts. Keep in mind that loan officers are basically salespeople who get paid to sell you something, especially a loan. Which loan is best for you and which one is the most lucrative for them can be two different things.
For example, be wary if a loan officer seems to be trying to steer you towards an adjustable rate mortgage (ARM). Arms can be a good choice for some people, especially those who know they won’t be home for very long. However, if you plan to stay in your home for more than about seven years, an ARM may not be a very good choice, as the interest rate could rise significantly during that time. A fixed rate loan would be more secure, even if it starts with a higher interest rate.
Because the onus is on loan officers to sell as many mortgages as possible, some may be tempted to refer you to an ARM with the idea of persuading you to refinance with a new loan in a year or two. If you find yourself in this situation, before you accept the offer, you will want to know:
- How much is the interest rate on the new loan lower?
- How much will you have to pay in reimbursable expenses?
- How long will it take you to recoup these costs under the new loan?
If you get a lower interest rate and don’t have to pay a fee, refinancing might be a better deal than what you currently have. Otherwise, be sure to do the math.
The bottom line
A loan officer or mortgage broker can help you find a mortgage. But to make sure you’re getting a great deal and the right kind of mortgage, you’ll have to do some legwork yourself. Fortunately, there are many online mortgage sites where you can compare rates and terms. In this context, collect loan estimates from the lenders you plan to do business with and compare them directly. And if a mortgage broker can come up with a more attractive offer, so much the better.