Today your best source of real estate financing is probably the mortgage broker. This is an individual or company that retails mortgages for a variety of lenders including banks, savings and loans, and mortgage bankers. When you go to a mortgage broker, you may be able to select from dozens of lenders, perhaps a hundred different lenders. Mortgage brokers are listed as such in the yellow pages of your phone book. Often real estate agents can recommend mortgage brokers with whom they’ve had success.
Your choices of a mortgage lender include banks, savings and loans, some credit unions, and mortgage brokers. In the old days you would have to trek from one to another to find the best rates and terms offered. Today, however, most lenders, such as banks (while still offering mortgages to walk-in customers), generally wholesale the mortgages out to mortgage brokers who, in turn, offer them (retail) to the general public. A good mortgage broker will represent the major banks in your area plus be able to offer loans from out-of-state lenders as well as some insurance companies.
It’s important to note that a mortgage broker does not actually provide the money. He or she simply acts as a conduit between you and the lender. A mortgage banker, a bank, or a savings and loan, on the other hand, is a true lender that actually funds the mortgage.
Another distinction to remember is between “conforming” and “nonconforming” loans. A conforming mortgage is one that your lender will later sell to Freddie Mac or Fannie Mae, the country’s two large semigovernmental home-lending agencies. These loans are given this name because they conform to the Freddie Mac/Fannie Mae underwriting guidelines. They currently have a maximum amount of $214,600, but are adjusted up every so often.
A nonconforming loan is usually one that is larger or differs in some way from a conforming loan. An example is a “jumbo” mortgage, one that is higher than the current maximum limits on conforming loans. Private lenders, such as banks, offer these larger jumbo loans at a slightly higher interest rate and then carry the mortgage themselves. (These are called portfolio loans because they become part of the bank’s portfolio, as opposed to being sold to other lenders.)
A good mortgage broker can offer you both conforming and nonconforming loans.
It is important to understand that the amount you pay for a mortgage includes the interest plus the points and fees charged up front. (A point is equal to 1 percent of the mortgage¡ª2 points on a $100,000 loan is $2000.) Normally, whether you go directly to a lender, such as a bank, or a retailer, such as a mortgage broker, the cost, including points and fees, is the same. Even though the lender saves money when you borrow directly, it will not usually pass the savings on to you. To do so would be to undercut its wholesale business, and no lender would do that for the sake of a single mortgage. Thus you won’t normally save any money by going directly to a bank instead of dealing with a mortgage broker.
This post is brought to you buy Robert Mericle, president of Mericle Commercial Real Estate Services.