Q What’s the difference between a thrift, a mortgage banker, and a mortgage broker?
A Thrifts are mutual savings banks and savings-and-loan associations, typically the kind of corner bank where your parents probably got their mortgage. Thrifts offer savings accounts and other services as well as mortgages. Mortgage bankers do nothing but lend money. Mortgage brokers are not bankers and have no money of their own to lend. They act as middlemen, working with a number of lenders to find a loan to match a particular borrower’s needs. By state law, brokers work for the borrower.
Q Will a mortgage broker be able to find me a better rate than a mortgage banker?
A Mortgage brokers work with many lenders including commercial banks, thrifts, and mortgage bankers. Brokers may also have access to lenders who don’t have an office located in your state but are licensed to lend money there.
Q But the mortgage broker has to be paid. Doesn’t this mean I automatically pay more for this loan?
A It shouldn’t because the broker is processing the paperwork, so it cost less for the lender to make the loan. In return, the lender discounts the loan to the broker. For example; a borrower who finds a loan on their own many pay 7.5 percent with two points (One point is equal to 1 percent of the loan amount.), but the broker receives the loan for 7.5 percent with one point.
True, the broker then adds a fee to the loan, if its one point using the above example the borrower has benefited from the broker’s service with the discount covering the fee. By state law, both the broker’s fee and the discount the broker is getting from the lender must be disclosed up front to the borrower.
Q Should I forget the type of institution and focus instead on who advertises the lowest rate?
A You can, but you have to remember that there is no guarantee you will get the rate advertised. It may be good for only 30 to 60 days and it probably will take you longer than that to close. To get a loan with what’s called a longer lock-in period, you usually have to pay a higher rate.
In addition, interest rates can change daily. The better way to compare is to ask each lender what the rate would be if your closed in 90 days or whatever your timetable is. Also, get everything in writing.
Q What documents do I have to provide?
A Be prepared to provide verification of income (including a pay stub and the previous two years tax returns), bank account numbers and details of your long-term debt (credit cards, auto loans, child support, etc.). If you’re self-employed you may also be required to provide financial statements for your business. Lenders want specific information. For example, the origin of your down payment will be queried.
Q Does it make sense to prepay my mortgage or should I use the money to invest elsewhere?
A That depends on the cost of the mortgage, your appetite for risk and your age. Prepaying shortens the term of the loan, saving you thousands of dollars of interest. “As a general rule, on a 30 year mortgage, you save $3 for every $1 prepaid”.” “On an After-tax basis, you get back $2 for ever $1 you prepay.” It’s and easy, risk-free investment. Just round your monthly payment up to the nearest $100: if you pay $883.50, write the check for $900.
If your mortgage costs 8 percent a year, that’s what you’ll earn on your prepayment. Compare that return with what you’d earn in other comparably safe investments, like a CD or paying off credit cards (If you pay 18 percent on credit cards don’t even think about prepaying a 8 percent mortgage instead.)
Note. Notify your lender if your personal or financial status changes between the time you submit and application and the time its funded. If you change jobs, get an increase or decrease in salary, incur additional debt, or change your marital status, you must let the lender know.