A Local Bank or a Mortgage Broker
Sam and Holly were looking for financing on their first house and didn’t know if they should use the two main lending options, a local bank or a mortgage broker. While they both perform the same basic functions how they go about it is often much different. It makes sense to try the local bank where they have their checking and savings. I mean, who else knows them best financially. However, a local bank confines itself to in-house guidelines and programs. A broker has access to several lenders, and they are more flexible if you have any wrinkles or twists in your background. For example, if you are self-employed or commission only vs. a fixed monthly salary. There are also pros and cons for each based on your specific credit profile, available down payment and debt to income ratio. Deciding on who to work with can be tricky. Here are a few pros and cons of each to help with your decision.
A Local Bank or a Mortgage Broker
Local banks cater to borrowers that have a strong credit score, significant down payment and low debt to income. It is not out of the question to find interest rates a half point lower than you would find with a mortgage broker with an excellent credit profile.
Where local banks falter is with any application that is out of the box. Most local lenders have a strict set of guidelines and underwriting rules that must be followed. There is little margin for error or ability to make exceptions. If you are less than perfect in any one of a number of areas your application will be rejected.
Holly and Sam are out of the box. They co-own a business, a Sub-S Corp. Their tax returns don’t show true income. It takes longer to gather all the documents for a loan, and they have to show tax returns for multiple years. Another pitfall for Sam and Holly is the length of the transaction. A good number of local banks do not do their underwriting in-house. Most loans are shipped off where you are at the mercy of strict underwriting guidelines. A local bank best serves “A” borrowers who know where they stand and are willing to wait a little longer to close.
Mortgage Brokers
Since the housing crash, according to CT Homes, “the industry has undergone sweeping changes. The biggest change deals with the requirements to hold a license. Not only are there local and national exams to get licensed but annual continuing education requirements. When you work with a mortgage broker today, you should feel confident that they know what they are doing.”
The next major change deals with how fees are charged and disclosed. There is a cap on how much they can earn and a fee sheet required before you get too far in the process. If these fees change by more than just a few percentage points the loan is re-disclosed and subject to a mandatory three-day wait to close. All of these changes were done with protection of the borrower in mind and have revitalized the industry.
The biggest benefit that mortgage brokers offer is their ability to work with several different lenders at once. They work with lenders that can stretch guidelines where local banks can’t. This allows borrowers with slight credit dings a better chance of getting approved. Another benefit is that brokers work with lenders on the wholesale level allowing them access to lower interest rates than what you may find locally. They also can offer interest rate credits that can reduce your bottom line needed at closing.
The negative aspect of mortgage brokers: they think they can help anyone. That means they fail and it costs you a great amount of time and could cost you money.
Get Pre-qualified
Before you seek any financing, you should have an idea of how strong your application is. You can get a pretty good idea by obtaining a copy of your credit report. In addition to your score, you can see what liabilities are listed. By taking the minimum monthly payments for these liabilities and dividing them by your gross monthly income, you have your debt to income ratio. This is one of the most important factors for loan approval.
We have experience, extensive knowledge of the business, and a network of resources. Path Forward Homes can assist homeowners with a wide variety of real estate problems. We pride ourselves on our reputation for working one-on-one with each customer to handle their situations.
With the ability to directly purchase homes and make cash offers, we can create an extremely fast, and hassle-free transaction.
Call us today at 509-591-9001