A mortgage is a mortgage is a mortgage. NOT! Not only do mortgages differ between lenders, but they also differ greatly by the lenders, themselves. There are two types of real estate originators -- brokers and loan officers.
Brokers generally are self-employed professionals, who work to secure a real estate loan for you. They work through a variety of lenders and earn a fee for the transaction. Most of the mortgage lenders who advertise on the Internet are brokers.
Loan officers are employees of a bank, credit union, or other lending institution, such as a mortgage company. They sell and process mortgages and other loans only for their employers. They are usually local and in a physical location.
There are advantages and disadvantages in using both brokers and loan officers for your real estate purchase, so you need to shop for the one that is right for you and your particular circumstance.
Brokers
The advantages to using a mortgage broker for your home purchase are many. Usually, the better deal they get for you, the buyer, the more they are paid on the transaction -- a big plus for you. If your local bank, mortgage company, or credit union has refused you a loan, a mortgage broker may be able to find a lender, even if you have bad credit -- just expect to pay a higher interest rate. If your real estate is unique or commercial property, using a mortgage broker to secure a loan is at times easier and faster.
One downside of using a mortgage broker is that your mortgage loan will be sold to another lender immediately after closing. Another is that brokers choose to do either non-conforming loans, which are higher risk and usually higher interest rates, or conforming loans. This limits your loan options. Brokers do not have to disclose a "good faith" estimate on what closing costs will be, nor are they regulated by the Fair Credit Act. Additionally, they seldom have a physical office with employees offering you face-to-face customer service, and they generally are in another town or state than where your real estate is located. This means they may not understand the local market in which you purchased your real estate. Important issues may arise from the real estate classifications and terms used by your appraiser, for example.
Loan Officers
Though loan officers offer a variety in the types of loans available, you are limited to only those products offered by one institution. Usually a local institution, the loan officer will be familiar with all local regulations and issues will not arise over lack of knowledge in local market terminology.
Banks and Mortgage Companies
Bank and mortgage company loan officers will give you face-to-face customer services, at least before the closing. Like brokers, banks have the option of selling real estate loans on the secondary market. Some banks sell only low-end mortgages or those that require too much servicing with little return. Some sell the loan but keep the servicing portion, making it appear that your mortgage continues to be owned by the bank or mortgage company. They are required, however, to tell you during the initial paperwork if your mortgage may be sold. I suggest you ask before you ever get to that point, if this is a deal breaker for you.
Bank and mortgage company loan officers are licensed and must meet certain criteria. They have more criteria that you must meet, as well, in order to secure a loan (banks usually require the most). Many real estate buyers are refused mortgage loans by these institutions. Both banks and mortgage companies generally do offer better rates and terms. They also must disclose a good faith estimate on what closing costs will be, and they are regulated and audited under the Fair Credit Act.
Credit Unions
You must be a member of a credit union to apply for a loan with them. Many credit unions do not offer real estate loans. The major advantage of securing a loan from a credit union is that they pass on only actual costs of the loan to you -- no broker fees or commissions. They also never sell their loans on the secondary market, they always are local, and give you continuing face-to-face customer service.
What to Do
The time to begin looking for a mortgage lender is before you begin looking at real estate. Ask family and friends for referrals, as well as their experience with the real estate lender. Ask your real estate agent for referrals. Then, contact each prospective lender and ask questions -- lots of questions! Compare interest rates, terms, after the closing mortgage sale policies, and what criteria do they require that you meet in order to qualify for a real estate loan.
If you are a residential real estate buyer, consider getting pre-approved for a loan. You will know exactly what you can afford to buy, which usually turns out to be much more than you expect.
Spend as much time shopping for a mortgage lender as you will for your real estate. The deal you get can save or cost you thousands or even millions over the life of the mortgage. Get the best deal possible, as well as the right lender for your real estate purchase.
