Clarification on terms (loans, fees, interest rate, broker)

[rettogo]

Can someone clarify some things for me please? What is the difference between a mortgage broker and just a lender (bank)? Also, as I was reading another thread, I saw all this stuff about points and having the APR set. What is that all about?

[rubytue]

A mortgage broker looks at a variety of banks and lenders to find a mortgage that meets your needs. Dealing directly with a lender means you only get approved for that lender's programs.

A broker is very useful when you have poor or blemished credit. By looking at lots of lenders, they can find someone you may not have heard of that will give you a loan. In return for this, you generally pay higher fees (often in points and/or yield spread premium)

When you have very good credit, you can generally get approved for the best programs with any lender, so you can shop around for loans yourself and compare fees.

If you go with a broker, and see a yield spread premium, that is the difference in the rate you are paying and what the bank could have given you directly.

[rettogo]

Ah ha...thanks for clearing that up for me.

[Gretchen B]

Originally Posted by rubytue

A mortgage broker looks at a variety of banks and lenders to find a mortgage that meets your needs. Dealing directly with a lender means you only get approved for that lender's programs.

A broker is very useful when you have poor or blemished credit. By looking at lots of lenders, they can find someone you may not have heard of that will give you a loan. In return for this, you generally pay higher fees (often in points and/or yield spread premium)

When you have very good credit, you can generally get approved for the best programs with any lender, so you can shop around for loans yourself and compare fees.

If you go with a broker, and see a yield spread premium, that is the difference in the rate you are paying and what the bank could have given you directly.

That yield spread premium is sort of like the difference between buying a product wholesale with a markup vs buying that same product retail. (Like buying a washing machine direct from Maytag vs Best Buy. You might get the better deal directly from Maytag, but maybe not.) The big banks are going to give you their "retail" rate. A mortgage broker can get that same loan from the same bank for you at a "wholesale" price, but then they have to mark it up to make their money. So sometimes a mortgage broker can make the very same loan to you cheaper than the bank can. A lot depends on how much or how little the broker is willing to make on the loan. The bank lenders aren't allowed as much flexibility to negotiate their fees. I have seen some folks with great credit scores, putting 40% down on a home, and getting burned on rates or fees at some of the big banks/lenders. Oh the other hand, not all mortgage brokers are knowledgeable and trustworthy. I happen to know several in my area that are absolutely great with great rates/fees, but I've known some others that were horrendous.

So . . . just shop carefully - not just interest rates, but also upfront fees.

[rettogo]

Originally Posted by Gretchen B

That yield spread premium is sort of like the difference between buying a product wholesale with a markup vs buying that same product retail. (Like buying a washing machine direct from Maytag vs Best Buy. You might get the better deal directly from Maytag, but maybe not.) The big banks are going to give you their "retail" rate. A mortgage broker can get that same loan from the same bank for you at a "wholesale" price, but then they have to mark it up to make their money. So sometimes a mortgage broker can make the very same loan to you cheaper than the bank can. A lot depends on how much or how little the broker is willing to make on the loan. The bank lenders aren't allowed as much flexibility to negotiate their fees. I have seen some folks with great credit scores, putting 40% down on a home, and getting burned on rates or fees at some of the big banks/lenders. Oh the other hand, not all mortgage brokers are knowledgeable and trustworthy. I happen to know several in my area that are absolutely great with great rates/fees, but I've known some others that were horrendous.

So . . . just shop carefully - not just interest rates, but also upfront fees.

I'm going to post a different thread for what I'm about to ask you, but do you know much about VA loans? That is the type of loan my husband and I are going after. It offers 0 down and lenders can't charge all these fees you were mentioning.