This questions is asked by most borrowers today as the borrowers have more and more options for finding financing for their homes. Getting financing is not simply about the rate and term of the loan. It is primarily an issue of FINANCIAL PLANNING that is customized to the client’s needs! This is the basic and most important truth about the real estate financing that most borrowers underestimate.
There are at least two solutions to this problem:
Your particular situation will determine the number of options that you might have. If you are an “A+” borrower with a perfect credit rating of 720+, steady job, plenty of money in the bank, and previous history of mortgage payments, you have unlimited number of options and you are probably better off going directly to several banks and making them compete for your business. Many banks may be willing to lower their fees and interest rate for securing a low-risk customer.
However, most of the borrowers today are not so picture-perfect. Their situations can be clouded by excessive debt, recent divorces, bankruptcies, self-employed income, frequent changes of employment and many other situations that traditional direct lenders will consider as a higher risk and hard to fund. In this situation, you are much better off working with a reputable broker, who will do your homework and legwork to find you the best option for your particular situation. A knowledgeable broker can help you chart a path to becoming a “A+” borrower through a series of milestones, which boils down, again, to the function of a FINANCIAL PLANNER, so valuable in this business.
I still remember one of my first clients, that I saved from foreclosure just two days before the bank was going to take away his house of seven years. This client went through every bank in his area and every one of them turned him down. I was his final resource, and being new to the business, I just didn’t know that I could fail. It took me approximately two weeks to find an option for this client that would not only save him from the foreclosure, but would take him out of a 12.9% interest-only loan and put him into a 7.5% loan with payments going towards both principle and interest. Needless to say, the client is a source of many of my referrals now. Final note to that story: When the client went to his bank (Bank of America) to get a cashier’s check to close escrow, the bank officer told him that he is paying too much in fees for the loan and they could probably get him a much better deal. The incompetent bank officer was not even aware that the same bank has turned this customer down just a month ago, but was willing to low-ball my fee of ONE POINT that I charged to this client! Moral to this story: stay away from people who are willing to offer you a free but incompetent advise without looking at an issue in depth.
One of the biggest areas of contention for the borrowers is the area of fees, points, and other charges that come into play in your loan. There are many unscrupulous lenders (both direct lenders and brokers) who try to include “junk fees” into the loan charges, but thanks to more information available to borrowers today, these fees are under constant scrutiny by the borrowers, legislators, and industry watch dog groups. However, one important thing to remember: by law, brokers must disclose to you ALL their fees, points, and charges, explain to you their meaning and purpose. The banks and direct lenders DO NOT! Most of the direct lenders make their money at the time of selling your loan to the next step in the lending hierarchy, such as Wall Street investors. And the absolute majority of lender will sell your loan rather than keep it in their portfolio. So, in reality the difference boils down to the fact that the brokers get paid on the front side, while the direct lenders get paid just as much on the back side without you knowing it.
Word of caution: beware of Internet lenders. I hear more and more complaints from my clients against companies like Ditech. There are a lot of unscrupulous companies that offer you supposedly best deals over the Internet, however, you end up getting a loan from a regular bank with fees that are higher than you would pay to the worst loan broker in your area. I am currently refinancing my client's loan with Ditech, were Ditech charged this client 10 points for a simple second loan! Yes, TEN points! On another loan, it took Ditech two weeks after application to even get back with my client, and the best excuse the loan officer had was: "I was working on this really large loan, and I couldn't get around to yours."
As attractive as the idea of sitting in front of the computer in your pajamas and applying for the loan sounds, you must speak with the professional on the other side, find out if the loan you are applying for is truly your best option, and see if you feel good about working with this loan professional on a personal level, as well. The personal connection is extremely important: if this person is right, he or she will be your life-long adviser and will help you save thousands of dollars in your career as a homeowner.
Whoever you choose to work with, be loyal! Treat loan professionals just like you want to be treated. If you want the loan officer to do extensive work for you, be honest with them if you will close the deal with them or with someone else. The amount of time the loan officer is willing to spend on your loan is directly related to the level of your commitment to do business with this loan officer. There is nothing wrong in telling the loan officer that you are shopping around and what options you currently have. The loan officer will tell you right away if he or she can help you or if the option you have is the best one and you should lock it. Unfortunately, quite often I see clients who try to get educated about their loan options with one loan officer, and then go to another one to close the deal. If you are honest with and loyal to your lender, you can expect and demand the highest level of commitment from this lender, which will result in the best solutions for you and your family, and a life-long help from a financial professional.
In the end, it is not the type of the lender, but an individual loan officer that makes the difference. Work with those individuals who educate you about your options, who treat you as a VIP, and who you would feel comfortable recommending to your best friend.
Alex Lisnevsky
Mercury Capital Group Inc.
(760) 757-5070