Vail Daily column: New mortgage rules give brokers an edge over bankers
If you ever wondered what the difference was between a mortgage broker and a regular bank, then you’re not alone. My career as a mortgage broker is often considered to be a mystery to many, in terms of the value a broker brings to a mortgage transaction.
Many people have the mistaken impression that they can get the same loan from a retail bank they get from a mortgage broker. They mistakenly assume that brokers just take the loan to a bank.
If it were that simple, then I wouldn’t stay in business very long.
What a broker does is represent several lenders (I believe we represent about 30 or so), most of whom are not household names, and only a few of which actually have a retail lending presence. The companies we deal with specialize in full-time mortgage lending, versus a retail bank that puts its energy in many directions such as credit cards, car loans and other consumer loans.
balancing pricing and flexibility
Our lenders have very streamlined operations, and don’t worry about having multiple retail locations, or huge advertising budgets. They compete on a balance of price and service and product offerings. There are some lenders we go to regularly for the plain vanilla loans (of which there are very few of in Eagle County, given the diversity of property types and high number of self-employed individuals) Some lenders we visit are capable of working outside the box to do loans for people with multiple income streams or very complex balance sheets. We also see very significant differences in interest rates and are free to shop a loan to find the right mix of pricing and approval flexibility to get the deal done. Generally, a brick and mortar bank will have only a few loan options, and if you don’t fit into one of those, you might be out of luck. Throughout my career, I’ve closed hundreds of loans that were denied by a traditional bank.
The other difference between a broker and a bank is the ability to cover closing costs, or in some cases actually pay clients tax-free cash to cover opening accounts for escrows and prepaid interest. Depending on the rate you choose and the parameters of your loan, a broker may be able offer you a range of blanket credits to offset your loan closing costs. Banks could do this if they wished, but they rarely do. Under the current regulatory laws brokers are subject to, we are required to offer you such an option.
While nothing is free, we offer the borrower the option of accepting a higher with a bigger closing cost credit, and while your payments might be higher, it shouldn’t be considered a bad thing. For example, a loan I’m working on right now allowed two options. At 4.125 percent, the borrower received a credit of about $4,000 to offset his closing costs. At 4.25 percent I could offer him a $7,000 credit. In this case the payment only increased about $32 per month, which equates to about 94 months of higher payments. As the client plans to sell the home within four to five years, he will come out ahead by paying the extra money every month.
While the $7,000 was far more than his actual closing costs, we were able to cover the funds required to set up closing costs and apply some of the difference to the payoff on the old loan. Getting a mortgage loan is generally the largest single financial transaction anyone undertakes. It pays to make the effort to evaluate all your options, and while it may seem comforting to go with a household name, ask yourself who pays for all that advertising that made them a household name? If you guessed the customer, then you’re right!
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and a collection of his columns may be found at http://www.mtnmortgageguy.com.