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Will a mortgage broker or a direct lender get you the best deal on home financing or refinancing?
The key is to understand exactly how direct lenders differ from mortgage brokers?
Direct lenders loan their own funds and are, in theory, capable of making the final approval or denial decision on your application. Banks, private lenders, and mortgage bankers will fall into this category. The direct lender will usually have a specific list of mortgage programs to offer. In theory, your mortgage will be processed (documents will be gathered, verified) and underwritten all “in-house”. The reason that these capabilities are “in theory” is that many if not most direct lenders will farm out the mortgage process to their retail division of loan originators and processors who will have to prepare and submit your loan to a team of overburdened underwriters who are constantly running three or four days behind. In addition, these lenders will rely on large credit lines put together by Wall Street financiers in order to provide the funds they use to close your loan. I am sure you have seen many recent news reports about major lenders suddenly shutting down when they lose these credit lines. In the end, if you fit the guidelines for the lender’s programs you are approved. However, if your situation falls even slightly outside the lenders standard guidelines, your mortgage will be denied. And the lender will have no further options.
A mortgage broker has many different banks, savings and loan companies and mortgage companies that they “broker” their loans to, similar to a stockbroker or independent insurance agent. In fact, almost every major direct lender you have ever seen an advertisement for has a wholesale loan division which offers better interest rates to mortgage brokers than their own retail division can offer. At the very least, the mortgage broker can almost always offer at least the same rates. Many lenders will point out that brokers receive extra money called “Yield Spread Premium” from lenders and are therefore “overcharging”. Mortgage brokers do receive a portion of their compensation this way, but those lenders never point out that on average borrowers receive lower rates and fees from mortgage brokers. Since a mortgage broker does business with many direct lenders throughout the United States, they can:
* Send the loan to many different underwriters (providing a backup plan should one option not work out)
* Shop for the best rates and programs from major lenders and specialty shops
* Save you money by having access to wholesale interest rates.
Therefore, in my opinion, the best choice is to find a mortgage broker you can trust, who will provide you with all the information you need to make the best decision about how to obtain the mortgage best suited to your personal situation.
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