Well, there are two primary channels that a consumer can obtain a mortgage loan - mortgage banks and mortgage brokers. Each of these groups have their own distinct advantages and disadvantages.
Mortgage Banks:
Generally, when people in the industry refer to mortgage banks, they are often talking about large retail banks such as Bank of America, Wells Fargo, Washington Mutual, etc. What makes these companies mortgage banks is that they lend their own money for mortgage loans. In other words, when you get a loan at Bank of America, they are actually writing the check at the closing.
Mortgage Brokers:
Mortgage brokers are middlemen who put home buyers and mortgage banks together. In other words, mortgage brokers do not actually lend their own money, but coordinate obtaining funds for you among the many different mortgage banks. Most mortgage brokers are small Mom & Pop business that are usually not known outside of their local markets. However, there has been a lot of consolidation in the industry and there are some large brokerages that are gaining in brand recognition.
People tend to favor mortgage brokers because on average they tend to be more competitive. Mortgage brokers do not have an allegiance to one particular bank and have the ability to find the best deals for their clients. When dealing with a mortgage bank, all you have access to is that particular bank's mortgage products and rates, which may or may not be competitive for your situation. Additionally, if you need a niche loan product or have credit issues, you are definitely better off with a broker. I also believe that the best loan officers tend to work for brokerages. Many banks use low paid call center workers and telemarketers to work as loan officers. Also, many loan officers work at banks early in their careers to get training and switch to brokerages where they can earn more money once they have built a sustainable client base.
Many people falsely believe that they can save money by going to mortgage banks directly instead of through a broker. What they fail to realize is that mortgage brokers obtain WHOLESALE interest rates from mortgage banks. The rates that a broker gets from Wells Fargo or any other retail bank are substantially different than the rates that would be offered if you went to that bank directly. The reason is that it is cheaper for a mortgage bank to offer their products to brokers at a discount and allow the brokers to add in their profit accordingly rather than to try to hire, train, and manage their own sales force. Simply put, mortgage brokers are like an outsourced sales force for mortgage banks. The general market agrees with my assessment as about 60% or so of mortgage loans are originated through brokers.
Mortgage banks do have their strengths. First, many people prefer to deal with recognizable brand names. Second, because they are making the lending decision, they can be more efficient in some cases.
The downside to mortgage brokers is that there tends to be a "used car salesman" component to the business. A few bad apples spoil it for the true professionals. With very little regulation and ridiculously low barriers to entry, mortgage brokerages can also attract some shady characters. As a result, it is important that consumers make sure they are dealing with a reputable brokerage and loan officer. Again, it isn't about the interest rate quote, but the person you are dealing with.
Regardless if you choose a bank or a brokerage to handle your deal, it is important to check references, rates, and fees to ensure you are receiving a competitive offer.
When you obtain a mortgage, it is the loan officer who will make or break your experience. The loan officer's primary responsibility is to guide the client through the financing process. Regardless of the interest rates and closing costs you receive, ultimately the loan officer is the one who is going to be responsible for ensuring you have a smooth purchase. I don't want to make this email overly complicated, but let me put this another way to get my point across:
Most consumers go about getting their mortgage by shopping on price - interest rate and closing costs. This is the wrong way to shop for mortgages. First, because the mortgage market is so fluid and pricing is so individualized to each person's situation, it is impossible for a consumer to know if they are getting the "best" deal. Second, most consumers usually have no idea what type of mortgage they want. I would say half my clients initially choose the wrong mortgage until we discuss their goals and objectives with the home they are purchasing. Third, because there is no way to hold lenders to rate quotes, consumers have no way of knowing if what they get on the day of closing will be what they wanted. They have to put their faith in the lender to deliver which gets me to my next point. If you have to put your faith in the lender, you should go about choosing your lender the same way you would choose any other professional - interviewing the loan officer like you would an attorney, CPA, or any other service professional.
I am not saying interest rates and closing costs are not important. However, what many consumers fail to do is strike a balance between expertise and costs by treating their mortgage like a commodity when in fact it is not the mortgage you are paying for, but the loan officer experience and dependability which cannot be commoditized. On a $500,000 investment, saving $50 should be of no consequence. While you don't want to over pay, you also don't want to nickel and dime your way out of a good deal either. A good loan officer will always get you a competitive rate, but a competitive rate does not always come with a good loan officer. Which version one do you think is more likely to close?
Put another way, would you rather hire an attorney for $100 bucks an hour who ALWAYS wins or hire an attorney for $75 bucks an hour who MIGHT win? So, would you rather hire a loan officer at 6% who ALWAYS closes on time or the random loan officer at 5.875% who MIGHT close on time, ultimately jeopardizing your $10,000 deposit in earnest money?
Before you even start talking interest rates, you should be discussing things like:
1) Your loan officer's education and professional background? Was your loan officer an accomplished professional in another industry and do that have an established track record in the business or were they hawking cell phones at a mall kiosk two weeks ago?
2) Your loan officer's client base? They should be able to describe their typical client which should generally be similar to your demographics. Most successful loan officers generally have a niche.
3) How well does your loan officer assess your needs? Do they immediately start quoting rates or do they complete detailed due diligence before spouting off rates? Most good loan officers do not "quote" rates without getting a FULL APPLICATION which means they need to fully assess the scenario. There are too many variables to just start spouting off rates. Can they logically explain why certain programs are better than others?
Buying a home is a complicated financial transaction. Unlike any other purchase you make, there are a host of other parties that will be involved each with their own responsibilities and agendas.
Let us be your Mortgage Provider:
Lakewood Capital Inc. would like to extend our services to you.
Our goal is to help out with all your lending and financial needs. Whether you are looking to purchase a new home, a vacation getaway at the lake, get some cash to pay off some bills, or just lower and fix your current rate, Lakewood Capital promises to provide you with the highest quality service coupled with the most competitive rates and superior mortgage programs in Maine.
Please call us today too free 1-888-516-7555 for a cost free, no obligation analysis of your current mortgage situation. It's a great time to take advantage of the markets low rates while working with Mainers that care about Mainers.
Thank you. Your business is important to us.
Sincerely,
Seth Jacobs
Lakewood Capital Inc.
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