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User avatar1210sda
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Postby 1210sda »Tue Jan 21, 2014 6:01 pm

Re: 30 year fixed mortgage for a first time home purchase. I have the general perception that getting a mortgage loan from a broker can be less expensive than using a bank.Is this correct? If so, are there any negatives that I should be concerned with ?I'm sure your collective experiences will provide a very helpful guide. Thanks Bogleheads

1210

Spirit Rider
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Postby Spirit Rider »Tue Jan 21, 2014 6:55 pm

When you say Mortgage Broker, what do you mean. Pretty much everybody is a mortgage broker (banks, credit unions, "mortgage companies"). Not many institutions hold mortgages as portfolio loans.If you are referring to an individual mortgage broker, I'm not a big fan.There are local/regional/national banks, credit unions, and mortgage companies. You should do your research. Very often a local or regional bank/credit union will have the best rates. You should do your homework of all of the banks/credit unions in your area. Everybody has a web site. Do not rely on search sites such as BankRate.com, etc..

National banks do not generally have the best rates, but you should still check them out, Sometimes they are trying to win some business, with low rates for a short period of time. Don't forget credit unions offering services nationally like PenFed.

ResearchMed
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Postby ResearchMed »Tue Jan 21, 2014 7:13 pm

It's always a good idea (in our minds, that is ) to apply for a mortgage several places, and make them different types of places.For example, we used a local (not national) bank, and a local mortgage company (not a full bank, just mortgages), and a larger bank.We originally got pre-approved before locating a home we wanted, and this made all the difference in getting that special place after looking for a long time. We kept getting the pre-approval updated every approx. 6 months.Note that pre-approval is a more complicated step than pre-qualifying (which typically just takes your claim about assets and income, rather than requiring all of the documentation).Then, when we found the "right" place, we applied at some other places. Because of the good credit and assets, we were able to get each to try to "get us as their customer" by making slightly better offers (another 1/4 or 1/2 % lower interest rate; waiving fees; etc.), and we did this a couple of rounds.We had expected to stick with the first bank.However, unexpectedly, the local mortgage company gave us by far the best terms.The rep even called us shortly before closing to tell us that she was able to get us a better interest rate. When we wanted to refi because rates came down, it was fast and easy with them again, and once again, they beat everyone else.Ditto the 3rd time. (The interest rates were lower enough that we saved the refi fees within less than a year each time.)But even if rates and policies seem to be the same/similar, apply with more than one lender.You don't want to have a snafu with a lender cause you to miss the home you wanted to buy, or worse, to lose any of your money.

RM

User avatartylerdurden
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Postby tylerdurden »Tue Jan 21, 2014 7:28 pm

I had a bad experience working with an individual broker when I bought my first house, so I have avoided them when possible. I still talk to individual brokers when I'm shopping around, but I have been fortunate to find good rates directly with banks each time. And all 3 times (original mortgage, refinance, and currently a new home purchase) ended up with US Bank. The most recent one was for a 5/1 ARM at 3%.

"The things you own end up owning you." -TD

sunnyday
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Postby sunnyday »Tue Jan 21, 2014 7:47 pm

Definitely shop around. Surprisingly a local mortgage broker gave me my best deal on my 2nd refinance. I used him for my next few refinances too. It's nice that it's local and I've developed a friendship with him, but if I could have gotten a better rate with a national online bank, I probably would have gone that route (or at least had him match the rate).

nordsteve
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Postby nordsteve »Tue Jan 21, 2014 8:16 pm

I will second the post on the Mortgage Professor. That has consistently been the best deal when I've financed.

User avatarMeg77
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Postby Meg77 »Wed Jan 22, 2014 12:40 pm

I am a banker who originates mortgages so I have a lot of experience with this. Using a mortgage broker is almost always more expensive than going directly to a bank or credit union for financing. This is because you pay a fee to the broker for his or her services, plus you pay the usual fees with whichever lender he or she connects you with. You may or may not notice this broker fee because it is sometimes hidden in the interest rate, which he or she will quote you as being a quarter point higher than the bank would have quoted you if you went to them directly. The bank then pays the broker the difference for the referral.Now that doesn't mean it's always bad to use a broker. If you have a very specialized financing need (you're buying a home in another country or risky area, or you are trying to finance an unconventional home construction), then the broker may be worth the money. He or she may save you a lot of time shopping around and be able to find a lender who is willing to do the project that you wouldn't have found on your own. Also if you have no banking relationships of your own and you don't qualify for a conventional mortgage because you are self-employed or have bad credit, then a broker may also be able to hook you up with a bank who holds and services their own mortgages rather than selling them off (you can find these banks on your own, but you may opt to save time and use a broker in this circumstance).

But if you are just looking for a regular 30 year fixed mortgage on a normal home in the US, let me save you a little time: just call Wells Fargo. I do not work for them, but they consistently have the best rates and close on time more often compared to any nationwide bank. Most banks these days are within an eighth of a point of each other on interest rates, by the way. Fees may vary slightly, but you can shop around all day long and call 20 lenders and probably all of them will offer you nearly the exact same rate on the same mortgage. There just isn't that much differentiation in the marketplace these days. All the new regulations in the last few years have taken that out of the picture.

"An investment in knowledge pays the best interest." - Benjamin Franklin

User avatarPhineas J. Whoopee
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Postby Phineas J. Whoopee »Wed Jan 22, 2014 2:38 pm

The one time I was taking out such a loan I used an "upfront mortgage broker" from the Mortgage Professor website. The idea is all fees are disclosed and you know exactly what you'll be paying.At closing, where the seller was a real estate company and I an individual, and everybody knew they'd pushed the date back so far I couldn't afford further delay, it turned out the lender paid the broker 2%, over and above what I'd agreed. I mildly objected, since I was clearly the [reference to a piece of hard candy with a stick stuck into it] at the table and couldn't do anything other than write every check just like my attorney told me, but was informed I wasn't paying it so I shouldn't care. It was my own lawyer who said that.

Every dollar that crossed the table originated with me, either directly or via the lender. The additional commission must have been accounted for in my rate. My only solace is I paid the loan offreallyearly. Eat my avoided interest, [reference repeats but in the plural]!

PJW

User avatar1210sda
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Postby 1210sda »Wed Jan 22, 2014 3:04 pm

Meg77 wrote:I am a banker who originates mortgages so I have a lot of experience with this. Using a mortgage broker is almost always more expensive than going directly to a bank or credit union for financing. This is because you pay a fee to the broker for his or her services, plus you pay the usual fees with whichever lender he or she connects you with. You may or may not notice this broker fee because it is sometimes hidden in the interest rate, which he or she will quote you as being a quarter point higher than the bank would have quoted you if you went to them directly. The bank then pays the broker the difference for the referral.Now that doesn't mean it's always bad to use a broker. If you have a very specialized financing need (you're buying a home in another country or risky area, or you are trying to finance an unconventional home construction), then the broker may be worth the money. He or she may save you a lot of time shopping around and be able to find a lender who is willing to do the project that you wouldn't have found on your own. Also if you have no banking relationships of your own and you don't qualify for a conventional mortgage because you are self-employed or have bad credit, then a broker may also be able to hook you up with a bank who holds and services their own mortgages rather than selling them off (you can find these banks on your own, but you may opt to save time and use a broker in this circumstance).

But if you are just looking for a regular 30 year fixed mortgage on a normal home in the US, let me save you a little time: just call Wells Fargo. I do not work for them, but they consistently have the best rates and close on time more often compared to any nationwide bank. Most banks these days are within an eighth of a point of each other on interest rates, by the way. Fees may vary slightly, but you can shop around all day long and call 20 lenders and probably all of them will offer you nearly the exact same rate on the same mortgage. There just isn't that much differentiation in the marketplace these days. All the new regulations in the last few years have taken that out of the picture.

Thank you very much Meg77. This is exactly the feedback I was looking for. Once again, Bogleheads rock!! Thanks also to all the other contributors. It's appreciated.1210

P.S. Meg, what about the issue of comparing loans when one has a lower rate but higher closing fees (and of course, the other has higher rate but lower fees)

User avatarMeg77
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Postby Meg77 »Thu Jan 23, 2014 4:55 pm

1210sda wrote:
Meg77 wrote:I am a banker who originates mortgages so I have a lot of experience with this. Using a mortgage broker is almost always more expensive than going directly to a bank or credit union for financing. This is because you pay a fee to the broker for his or her services, plus you pay the usual fees with whichever lender he or she connects you with. You may or may not notice this broker fee because it is sometimes hidden in the interest rate, which he or she will quote you as being a quarter point higher than the bank would have quoted you if you went to them directly. The bank then pays the broker the difference for the referral.Now that doesn't mean it's always bad to use a broker. If you have a very specialized financing need (you're buying a home in another country or risky area, or you are trying to finance an unconventional home construction), then the broker may be worth the money. He or she may save you a lot of time shopping around and be able to find a lender who is willing to do the project that you wouldn't have found on your own. Also if you have no banking relationships of your own and you don't qualify for a conventional mortgage because you are self-employed or have bad credit, then a broker may also be able to hook you up with a bank who holds and services their own mortgages rather than selling them off (you can find these banks on your own, but you may opt to save time and use a broker in this circumstance).

But if you are just looking for a regular 30 year fixed mortgage on a normal home in the US, let me save you a little time: just call Wells Fargo. I do not work for them, but they consistently have the best rates and close on time more often compared to any nationwide bank. Most banks these days are within an eighth of a point of each other on interest rates, by the way. Fees may vary slightly, but you

can shop around all day long and call 20 lenders and probably all of them will offer you nearly the exact same rate on the same mortgage. There just isn't that much differentiation in the marketplace these days. All the new regulations in the last few years have taken that out of the picture.

Thank you very much Meg77. This is exactly the feedback I was looking for. Once again, Bogleheads rock!! Thanks also to all the other contributors. It's appreciated.1210

P.S. Meg, what about the issue of comparing loans when one has a lower rate but higher closing fees (and of course, the other has higher rate but lower fees)

This is the reason all lending institutions are required to give you the APR or Annual Percentage Rate on your loan request. The APR includes all interest AND fees which is why it's always slightly higher than the stated "interest rate" you are paying. So you can use it as a single number to make apples to apples comparisons on the total cost of a loan. However you usually have to actually apply for a mortgage (i.e. fill out a long form online and have them run your credit) before you can get the disclosures that have the APR at the top. So that puts a bit of a damper on the actual ability of people to compare too many options this way. Plus the APR includes the cost of the fees divided over the entire life of the loan - and when looking at long term loans this diminishes their impact (the vast majority of all loans are paid off within 10 years because people sell or refinance or pay the loan off). Most of the big banks have very similar fees; maybe the application fee will vary by a couple of hundred dollars at most. Many online lenders though will suck you in with advertised rates way below market and then hit you with a $2500 "underwriting fee" or some other nonsense to make up for it. In general all mortgage fees that go to the lender (application, origination, underwriting, processing and/or whatever other name they use) should be under $1000. A $650 underwriting fee plus a $250 application fee, for instance, is common. Check the fees, but in general just go with the lowest rate unless they are way out of whack. A $250K mortgage at 4.5% will cost you $1,262 a month. At 4.75% that same loan will cost $1,298 a month. That's $36 a month or $432 a year. It's not a huge amount, but it is more than the difference in the loan fees probably adds up to.

Good luck!

"An investment in knowledge pays the best interest." - Benjamin Franklin

Dulocracy
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Postby Dulocracy »Fri Jan 24, 2014 11:22 am

Mortgage Brokers have to be licensed. The person you speak to at the bank about a mortgage may have been a teller last week. My firm has a mortgage broker that has been able to do wonders for clients, and he is able to shop several lenders to find the best fit. A client was talking to a bank where he would have PMI, but the broker was able to find an option for the individual where there was no PMI. The rhetoric about Mortgage Brokers adding on fees is a red herring. Often, because the Broker is doing the front-end work, the broker saves money for the lender, so the overall note can be less. Any and all mortgages have to have a HUD statement that explains what the costs are. A good mortgage broker will be able to tell you all of the costs before you apply (as should a good banker).The above is not to say that there are not excellent bankers who get mortgages or that all Brokers are excellent. What I have found (as an attorney dealing with divorce cases where there are a LOT of refinances or clients moving to a new house) is this:If you get a good mortgage broker, it is going to be better than most bankers.Bankers are more consistent, but have more limitations on what they can do.If you get a bad mortgage broker, you will waste time (and possibly money).Do not get a referral to a mortgage broker from a real estate agent, as they may be cozy or have some agreement about referrals. (While what they can do is limited, there are work-arounds). DO, however, get a referral. Ask for references. This is not to say that a mortgage broker will always be better if you find a great one. From my experience, however, there is a lot more that the mortgage broker can do to help someone work with their individual situation than a banker can. Because bankers have to go with what the bank offers, they have less flexibility but are more consistent.

Edited to note: Regulations can be very state-specific, so your results may vary by state.

I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

User avatar1210sda
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Postby 1210sda »Fri Jan 24, 2014 12:54 pm

Dulocracy,
If I had met you at a bar, I would ask you....How can you identify (in advance) if you are getting a good mortgage broker?? 1210

Dulocracy
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Postby Dulocracy »Fri Jan 24, 2014 1:18 pm

1210sda wrote:Dulocracy,
If I had met you at a bar, I would ask you....How can you identify (in advance) if you are getting a good mortgage broker?? 1210

By referral. As someone in a business field with more contact, I have an advantaged. If someone is a business owner, asking around in a Chamber of Commerce is a great way to find out who is qualified and who is not. Because closing attorneys see a lot of brokers, that can be a good way to find out. (While I personally do not do closings, I know that closing attorneys rarely give this type of referral, so they are not likely to have a monetized relationship with the broker. Also, as they have dealings with many brokers, they will be able to see which ones tend to be better.) Also, asking a broker for references can be a good screening technique. Reputation is the best way to identify mortgage brokers to interview, followed up with some due diligence (references, etc.). At that point, compare the types of mortgages they offer to you with one at the local bank. (I am a proponent of speaking to both. Although a good mortgage broker usually beats the bank, that is not always the case.)Indeed, that is the downside of getting a good mortgage broker (thus the reference of the greater consistency of bankers): it takes some time/effort to find a good mortgage broker.

I am glad to see that people do read taglines. If you asked me in the bar, I would just give you the card of the guy I use for my divorce clients. (Since a referral usually reflects on the person giving the referral as well, most professionals will not want to tarnish their reputation to pass along the information of someone in whom they do not have confidence. Of course, there is never an absolute way to know that the mortgage broker or banker is not crooked or incompetent, as with any profession.

I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

VgSince1982
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Postby VgSince1982 »Fri Jan 24, 2014 3:51 pm

This is an interesting thread. I am a mortgage broker and I see some facts and fallacies so far. Here is my 2 cents:

Mortgage Brokers have to be licensed. The person you speak to at the bank about a mortgage may have been a teller last week. My firm has a mortgage broker that has been able to do wonders for clients, and he is able to shop several lenders to find the best fit. A client was talking to a bank where he would have PMI, but the broker was able to find an option for the individual where there was no PMI.

Agreed. Most broker shops are small businesses with longevity and ties to the community. We try to navigate the loan process and offer our expertise - with a low enough overhead - to beat the rate that the competition offers. And competition is good for the consumer, absolutely.

Do not get a referral to a mortgage broker from a real estate agent, as they may be cozy or have some agreement about referrals. (While what they can do is limited, there are work-arounds). DO, however, get a referral. Ask for references.

I think a real estate agent can offer great advice for choosing a lender. First, it is a RESPA violation to have ANYTHING go between attorneys, lenders and realtors (except for builder's lenders which skirt the rules). A real estate agent is interested in a transaction CLOSING for a payday and will not compromise that for an illegal kickback. The first time a lender does not do a good job, the real estate agent will no longer recommend that lender. I would absolutely rely on their recommendation, but ask for the three best, not just one.

The one time I was taking out such a loan I used an "upfront mortgage broker" from the Mortgage Professor website. The idea is all fees are disclosed and you know exactly what you'll be paying.

ALL brokers must disclose all fees, start to finish. ALL banks must disclose all fees, start to finish. The difference is that bankers don't show a line item saying what they make for doing the loan. (Please know that neither does loans for no income.) By law, brokers must show it as a line item.

But if you are just looking for a regular 30 year fixed mortgage on a normal home in the US, let me save you a little time: just call Wells Fargo

Recently a very frustrated closing attorney said she was about to refuse to do closings if the lender was BofA or WF. They offer market rates, but they've had such deep cuts and turnover in their processing and closing departments that they've lost quite a bit of expertise. At this closing, both agents and the attorney were shocked that the closing took place without any delays. I used a smaller local lender for this loan and managed the process to the end.

The APR includes all interest AND fees which is why it's always slightly higher than the stated "interest rate" you are paying.

The APR includes fees, but the computation is non-standard. It is a good starting point for comparing loans, but it's good to also ask what numbers went into the APR calculation. For instance, a loan closing on the 2nd of the month will have a higher APR than the same loan closing on the 30th of the month. If you are comparing APRs, perhaps ask for the same assumptions on each loan.

it turned out the lender paid the broker 2%, over and above what I'd agreed. I mildly objected, since I was clearly the [reference to a piece of hard candy with a stick stuck into it] at the table and couldn't do anything other than write every check just like my attorney told me, but was informed I wasn't paying it so I shouldn't care.

The lender was going to pay someone 2% to do this loan. It's a good thing to see this disclosed, not a bad thing. And think about it, for that 2%, the lender doesn't need to hire anyone, fire anyone, pay rent, pay health insurance or pay salaries. For that 2%, a loan lands in their lap. This is why lenders have retail AND wholesale (broker) channels...they can expand their business without the risk of taking on too many employees.

Keep an open mind and be the best consumer you can be. You should always shop around. Don't hesitate to show one lender what another lender offered. It can be very instructive!

User avatarG-Money
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Postby G-Money »Fri Jan 24, 2014 3:56 pm

Any reason you can't sit down with a mortgage broker and compare the quote he/she gives you with quotes from Aimloan, Amerisave, NMA, PenFed, Firstib, any "upfront mortgage lenders" listed on Mortgage Professor's website, local banks, and credit unions?

I can get quotes from all of the above lenders online in 10 minutes without giving any personal info. So really, this is just a question of whether you feel like taking the time to see if a mortgage broker can beat the best quote you can get online.

Don't assume I know what I'm talking about.

VgSince1982
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Postby VgSince1982 »Mon Jan 27, 2014 10:31 am

Any reason you can't sit down with a mortgage broker and compare the quote he/she gives you with quotes from Aimloan, Amerisave, NMA, PenFed, Firstib, any "upfront mortgage lenders" listed on Mortgage Professor's website, local banks, and credit unions?

The best way to compare is to get Good Faith Estimates on the same day.

Also keep in mind that your consideration of lender might be different if you are refinancing vs. if you are purchasing. With a purchase, you have down payment funds on the line and a date by which you need to close. There is a great deal of work that needs to happen to close on time - and if buyers and sellers have moving trucks idling in driveways, the pressure to close on time is significant.

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