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This issue has probably been discussed before on this forum, but can members review for me or indicate a thread discussing the pros and cons of seeking a mortgage directly from a bank and through a mortgage company/broker.
From my research so far, in terms of rates, it seems that banks are currently offering 6.75% fixed, while I have seen competing offers around 6.125% and everything in between, and on the high end BoA at around 7%.
But I am worried about hidden costs with mortgage companies/brokers.
To what extent can one negotiate advertised rates with banks? My average credit score is around 770, no debt, possibly seeking a $200-220k mortgage on a first-home purchase, 20% down, annual income from self-employment around six figures.
Is it better to deal with a bank with which I already have checking, savings, investment and/or credit accounts or go to a totally different bank?
Is it better to walk into a bank branch and speak to a bank loan officer than to fill-out on online application?
A lot of people talk about 'hidden costs' but I have yet to see that happen in the recent months/years.
I'm assuming that you're talking about baiting/switching.
If you don't qualify for a program, then they would need to change the program.
One thing that maybe a program is that rates/fees change every day, and sometimes three times per day. Going to see a person will not get you a better rate/fee than calling someone on the phone or going online.
Some people say that 'in person' there is more trust that your loan will go through. I worked at BofA, and their processing/underwriting centers are in other states as it is with most lenders.
There's no such thing of the VicePresident sitting next to the loan officer, and the loan officer will 'speak' to him/her. If someone is telling you this, then you need to move on.
Go with someone who is straight forward, and can provide a good rate.
Going to the guy who tells YOU what YOU want to hear may cost you a lot of money in the end.
like renriq said, hidden costs aren't really hidden. for example years ago i was working for a brokerage firm and my cousin was buying a place in orlando. his realtor had referred him to her friend at a retail banking branch. she quote him a rate .125% lower than mine. i warned him about retail banks. most mortgage reps don't know the mortgage process or understand it. he actually qualified for a higher rate, so they charge him discount pts to get that rate. those are the "hidden costs" people find out about at closing. had he just gone through me he would have closed at 6% and i was going to eat most of his closing cost, after all, he was my cousin. i wasn't going to make anything on it. he ended up getting charged 7k in fees and paying MI.
traditionally brokers have access to a wholesale line of rates lower than branch rates. the other reason to go to brokers was, you go to 1 and he shops your loan around, basically calls banks reps tries to place the loan to get you the best rate. that is what they are supposed to do. i think it is fair to say that at least 50% don't do that. an experienced broker knows what banks can do what deals. with the way things are, its difficult for brokers right now, banks are always closing and suspending lending. there was a few months where i was getting 3 emails a week. i went from being able to shop 200 banks to about 40 by this spring.
now with a retail branch, they are limited to the few programs they do. typically that is A paper; 720 credit scores, full documentation with income. previously if you didn't qualify, they would just say you didn't approve. there system is all automated, the person pulling your credit doesnt usually have access to even see your credit score.
my suggestion would be to find a knowledgeable broker or bank that is recommended by friends and family. ask some people, see what they say. and get a good faith estimate, this breaks down the total cost of everything on the loan and should be accurate to around $1000 give or take depending how accurate the person is.
remember high rate = low cost, low rate = high cost
all those low advertised rates are charging discount pts. which means you pay up front at closing to for interest on the loan instead of monthly at a higher amount. for most people this is not something that benefits them. but for self employed people who like tax breaks, spending this through closing gives them a write-off and allows them to keep their payments lower.
my suggestion would be to find a knowledgeable broker or bank that is recommended by friends and family. ask some people, see what they say. and get a good faith estimate, this breaks down the total cost of everything on the loan and should be accurate to around $1000 give or take depending how accurate the person is.
remember high rate = low cost, low rate = high cost
all those low advertised rates are charging discount pts. which means you pay up front at closing for interest on the loan instead of monthly at a higher amount. For most people this is not something that benefits them, but for self employed people who like tax breaks, spending this through closing gives them a write-off and allows them to keep their payments lower.
Just to add my 2 cents, the important part is not to call around asking "what rate do you have". The correct answer would be "that depends on what you qualify for and what closing costs you are willing to pay" or something to that effect. After all, no one can really give you a rate/terms until they have learned the specifics of your situation. Even after that, it will depend on the fees and risks you are willing to take on. There were some low rate ARMs 2-3 years ago... I am sure few people that took them are jumping for joy today about the "low rate" they got back then and the risks they are stuck with now.
It is more important to find out whether you can trust the person and that they know what they are doing. Ask them about their education, experience, training, licensing and get referrals from friends or ask for references from the loan officer. After all, a good faith estimate and truth-in-lending statment are based on "faith" and "trust" in the person doing them. Anyone can pull a bait and switch and lie on a GFE or TIL, whether at a bank or broker. Some don't even mean to lie, they just do not know enough to be accurate... but instead of saying that they will try to make it work, and their inexperience will cost you in the end.
Both banks and brokers can be great or can be a disaster. The benefit of a broker is that they can shop your loan to more lenders with more programs. For example, some lenders won't offer FHA below a 620 credit score and some will require 3 months of house payments. If you went directly to them, they would tell you no and send you on yoru way. Where if you went to a broker, they might have someone that would appove you with a 610 score or 2 months of house payments saved. Guidelines can vary and a good broker will shop your loan around to find the best place to approve it at the best price to you.
Of course a bad broker might not shop it at all, or instead of comparing options to get you the best rate might just be looking at where they can make the most money. Again, that is where experience and honesty count and why you need to look for a broker that you can trust. Doing that isn't as easy as shopping for rates, but in the end will be far more valuable.
My husband and I were in a very similar situation last month in terms of credit scores and price range. We asked my parents who they got their mortgage from, and they said Wells Fargo and highly recommended them. I called my local Wells Fargo bank and got a good faith estimate. I also got a good faith estimate from Bank of America, but their closing costs were not as competitive for the same interest rate and I was wary of their merger with Countrywide. Before we decided to go with Wells Fargo we wanted to talk to a mortgage broker just to make sure we were getting the best deal we could. I knew that mortgage brokers were hit or miss so I asked for a referral from my realtor. The mortgage broker that he recommended was pretty good and he could get us a slightly better deal than Wells Fargo. At the last minute, however, the banks that the mortgage dealer delt with changed some of their policies and that made me feel uncomfortable so we ended up going with Wells Fargo. I would recommend getting a good faith estimate from at least two banks and one mortgage broker, and I would do it on the same day so you could compare rates better. Then make a decision based both on the numbers and which person you felt more comfortable working with. Good luck -- I can't imagine you'll have too much difficulty!
An honest broker should tell you how much he is charging on your loan.....
..
With all due respect, the OP said that the BANKS were quoting him those rates, not a broker. Not to mention that pricing varies from state to state and from lender to lender, so the pricing you posted may very likely not apply to this particular persons scenario. For example, similar scenario in Las Vegas right now will gross about 3/4 to 7/8 on the back at 6.75%.
Maybe I'm taking it the wrong way, but the whole "honest broker " seems like an underhanded swipe and is not necessary to answer the OP's question.
Sorry for the OT rant. But to expand on what Mod Specialist said, brokers are required to disclose what their YSP is in the initial disclosures and are not allowed to deviate from that. Make sure that it is disclosed as a dollar amount, and definitely make sure that the broker does not try to slide that past you.
Thanks again to all for your responses, especially the suggestion of going to two banks, probably the two that I do most business with, and one mortgage broker through a referral.
I agree with the principle that there are good and bad in every profession, sometimes it is just the luck of the draw.
i feel if you are already banking with a bank it is always advisable to go with them for fresh mortgages. as it is good to inquire with brokers and other banks. if you find the deference in the interest is too high then shift accordingly. if it isn't that much and you have inquired about the hidden costs then continue with the original one. it will help you in the longer run
Vik
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