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You can also get a home loan through a mortgage broker. Brokers arrange transactions rather than lending money directly; in other words, they find a lender for you. A broker's access to several lenders can mean a wider selection of loan products and terms from which you can choose. Also see: Financing for Small Business
Mortgage brokers will generally contact several lenders regarding your application, but they are not obligated to find the best deal for you unless they have contracted with you to act as your agent. Consequently, you should consider contacting more than one broker, just as you should with banks or thrift institutions.
Whether you are dealing with a lender or a broker may not always be clear. Some financial institutions operate as both lenders and brokers. And most brokers' advertisements do not use the word "broker." Therefore, be sure to ask whether a broker is involved. This information is important because brokers are usually paid a fee for their services that may be separate from and in addition to the lender's origination or other fees. A broker's compensation may be in the form of "points" paid at closing or as an add-on to your interest rate, or both. You should ask each broker you work with how he or she will be compensated so that you can compare the different fees. Be prepared to negotiate with the brokers as well as the lenders.
Obtain All Important Cost Information
Be sure to get information about home mortgages from several lenders or brokers. Know how much of a down payment you can afford, and find out all the costs involved in the loan. Knowing just the amount of the monthly payment or the interest rate is not enough. Ask for information about the same loan amount, loan term, and type of loan so that you can compare the information. The following information is important to get from each lender and broker:
Home Mortgage Rates
Ask each lender and broker for a list of its current mortgage interest
rates and whether the rates being quoted are the lowest for that day or
week.
Ask whether the rate is fixed or adjustable. Keep in mind that when
interest rates for adjustable-rate loans go up, generally so does the
monthly payment.
If the rate quoted is for an adjustable-rate loan, ask how your rate and
loan payment will vary, including whether your loan payment will be
reduced when rates go down.
Ask about the loan's annual percentage rate (APR). The APR takes into
account not only the interest rate but also points, broker fees, and
certain other credit charges that you may be required to pay, expressed
as a yearly rate.
Mortgage Points
Points are fees paid to the lender or broker for the loan and are often
linked to the interest rate; usually the more points you pay, the lower
the rate.
Check your local newspaper for information about rates and points
currently being offered.
Ask for points to be quoted to you as a dollar amount—rather than just
as the number of points—so that you will actually know how much you will
have to pay.
Fees
A home loan often involves many fees, such as loan origination or
underwriting fees, broker fees, and transaction, settlement, and closing
costs. Every lender or broker should be able to give you an estimate of
its fees. Many of these fees are negotiable. Some fees are paid when you
apply for a loan (such as application and appraisal fees), and others
are paid at closing. In some cases, you can borrow the money needed to
pay these fees, but doing so will increase your loan amount and total
costs. "No cost" loans are sometimes available, but they usually involve
higher rates.
Ask what each fee includes. Several items may be lumped into one fee.
Ask for an explanation of any fee you do not understand.
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