Who Should Finance Your Mortgage?
When you're buying a house, or when you find yourself in need of cash and you're looking around for a loan, you should think carefully about where you get the financing for your mortgage. Several types of lenders offer mortgages: traditional banks, credit unions, savings and loans, and mortgage brokers, to name a few. When you decide who to go with, you should consider several different expenses you'll incur. Mortgage Broker Fees First, mortgage brokers make a broker's fee; much like a real estate agent makes a commission on a house, because they are there to find you the best lender, and to find the lender a steady supply of customers. Instead of lending you money directly, a mortgage broker shops around for you to several different banks, looking for the best deal for you. If your credit has some issues, a mortgage broker may be able to find funding for you that you could not find for yourself. Their fees come from you, and sometimes from the lenders as well. About half of all loans originate from a mortgage broker. When the lender makes the loan, they process it and sell it to an investor, which include government companies, state pension funds, and private funds. If you've ever heard of Fannie Mae or Freddie Mac, these are quasi-governmental companies that help finance the loans you need to buy a new house, or to pay for the improvements on the one you already own. Again, your mortgage broker may be helpful in this process by speeding up your closing and finding you the best rate from the investor. When you use a mortgage broker, be certain you know up front what the fee is going to be, and what kind of deal the broker feels he can make for you. You can compare that with the deals you can come up with on your own and determine whether any savings will be worth the broker's extra fees. Banks and Service Fees Typically, banks finance and process your mortgage the same way a mortgage broker would. However, since they are the lender, you have only two parties handling your loan: the bank and the investor they sell it to. You will continue making payments on your mortgage to the bank that originated the loan. Their service fees (like closing costs and finance fees) are similar to those of a mortgage broker. Again, be certain you have up-front information on what your fees will be and how they'll be charged. This can save you loads of trouble in the long run. You should shop around between banks (and services similar to banks like credit unions) and mortgage brokers, and determine who between them will give you the best deal and the best service in financing your mortgage. Your loan is subject to sale, no matter which type of service you go with. You have a signed contract, so your fees, interest, etc. should never change if your loan is sold; you just need to pay the new lender. Ultimately, there should be no difference. Make sure, though, that you always read any literature your lender sells you; you would not want to miss news of the sale of your loan. It could cause missed payments and credit headaches.