Understanding Different Types Of Mortgage Lenders
When buying your home in Brooklyn, it is essential to understand the different types of lenders available to ensure you are getting the most favorable terms, conditions, and interest rate that will work best for you. Most buyers typically go to the local bank they usually deal with to apply for a mortgage, but that may not necessarily be the best source for their financial circumstances.
A mortgage is a long-term (often 30 years) commitment that costs you money. Most buyers are astounded by the amount of money they will pay over those years to pay off their mortgage on their Brooklyn home. It pays to shop around, learn, and compare the different terms, fees, interest, and programs available for your particular needs before starting your Brooklyn home search.
Mortgage Lenders vs. Mortgage Brokers
Mortgage lenders do precisely that; they loan you money to buy or refinance a home. You have to meet their criteria to qualify, and they set their mortgage rates terms accordingly. An advantage to mortgage lenders is their sole focus is on real estate loans, which will handle the entire process “in-house.” Usually, this can shorten the time frame involved in obtaining a mortgage and give you access to direct information regarding your application status.
Mortgage brokers, on the other hand, don’t lend you money. They work with multiple lenders to get you discounted rates and better terms. Mortgage brokers also have access to many different lenders and loan programs. If you don’t fall into traditional lending criteria such as being self-employed, have a small down payment, or are looking for a government-backed loan (for example, FHA, VA, or USDA home loans).
Mortgage brokers then charge you a fee, typically 1-2% of the loan. Depending on how much the broker fee is, it determines if you see a discount or not. A buyer needs to scrutinize their Loan Estimate to be clear about what they are paying and whom.
Banks and Mortgage Bankers
The most common of all financial institutions is your local banks. For many people, their local bank is the first and possibly only financial institution they will ever deal with. Besides offering checking, savings, and investment options, banks offer different types of mortgages for qualified buyers.
Assuming you already have a relationship with a bank, you may find it easier to reach out to your local banker to assist you with the home loan process. Some banks also offer incentives for more attractive interest rates by asking you to buy into other financial products such as credit cards for more favorable mortgage terms. Also, the bank will most likely continue servicing your loan after closing.
The major downside of local bank’s mortgage loans is that they often come with stricter lending standards because they’re subject to federal compliance and reporting laws. These compliance issues may make it harder to get a loan if you have less than stellar credit, a major financial event (like foreclosure or bankruptcy) to your name, or are self-employed. It also takes longer to close on a loan. The fees involved are usually higher due to compliance requirements, and they have less mortgage lending expertise.
Credit Unions
Credit unions are very similar to banks, except they are owned by their account holders, known as members. This type of institution usually requires membership to get funds from its members.
Very similar to banks, they offer a range of services to members like checking and savings accounts and retirement accounts. Members usually utilize their credit union as a one-stop-shop, obtaining their mortgage loan and all their other banking needs in one place.
So Which Is Best For You?
According to your specific needs, it depends and will vary from one home buyer to the next.
If getting to the closing quickly is important to you, then knowing how long it will take to process your loan application is imperative. In this case, a mortgage broker or mortgage lender may be a better option for you.
If time isn’t a factor and you prefer to have all your financial accounts in one place, your local bank or credit union would be best. Just keep in mind they all may not offer government-backed loans such as FHA or VA.
Another important consideration is if your credit is less-than-perfect or your debt-to-income ratios are high, you would be better off with a mortgage broker who can match your circumstances favorably with the right lender.
Banks and credit unions tend to have more conservative underwriting guidelines. As such, these institutions may not be able to approve your loan application. Lenders and brokers, however, tend to be more flexible.
Whichever you choose, be sure to look over your Loan Estimate carefully and consider your costs and fees when comparing different lenders.
If you take the time to do this before you start your home search, you will be prepared to make a solid offer that gets accepted on the Brooklyn Home of your dreams.
For expert assistance in navigating your way through the home buying or selling process, please get in touch with me, Tina Epstein at 917-364-1070 or tina.epstein@compass.com
