Selecting a Lender - What Kind of Lender?
|
Another issue that many buyers fail to adequately consider when looking for a lender is this: what kind of lender should you use? Stated differently, the question is this: should you use a traditional bank-or-financial-institution-based lender, or a mortgage broker that is not tied to any one source of financing? Here are things to consider when making this decision…
How Banks and Mortgage Brokers Differ
Once you’ve decided to obtain a loan, you have two basic categories of lenders from which to choose: bank/financial institution loan officers, or mortgage brokers. While both end up providing you with the same basic product – money to finance your purchase of a home – they provide that product in different ways, as follows:
• Bank Loan Officers – Loan officers at banks, credit unions and other lending institutions are employees that provide funding that originates specifically from their employer. The primary perceived advantage of working with these types of lenders is that they are typically salaried employees, and as such are not motivated by the amount of commission they’ll make from pushing “lending product A” vs. “lending product B.” The primary perceived disadvantage is that you are limited in terms of the number of loan products they can offer, as they are only able to those loan products offered by their employer. Also, they tend to be less flexible when dealing with “problem” credit borrowers.
• Mortgage Brokers - Mortgage brokers are professionals who are paid a fee to bring together lenders and borrowers. They usually have relationships with tens, or even hundreds, of lenders, and they are able to originate loans from any of these sources. The perceived advantages of working with mortgage brokers are that they are more flexible, they can more readily deal with “problem” credit borrowers, and they have many more options from which to choose. The primary perceived disadvantage is that, because they are almost always paid on a commission basis, they sometimes steer their clients toward high-margin loans, not necessarily the loan that is best for the client.
What Difference Does it Make?
In the end, you can have a great lending experience – or a bad lending experience – with either kind of lender. As in all things in life, there are good and bad people in all walks of life. The key thing is to simply be aware of the limitations of the lenders that you end up considering. If you have lesser credit, you’ll probably be better off going straight to a mortgage broker, simply because you will have more options from which to choose.
A mortgage broker may find you a lender in another part of the country. While this is generally a good thing, this can create problems when out of town lenders don't understand certain nuances and colloquialisms unique to a given geographic area (e.g., septic systems, or specific classifications and terms used by local appraisers). These are just a few examples of problems we've seen that caused deferrals of loan approvals provided by a non-local lender. Using a local bank can sometimes be a plus. Their underwriters generally understand the specifics of local properties, and there tend to be fewer last minute surprises simply because of that local knowledge.
Michael McClure is the founder of Professional One Real Estate, a brokerage located in Plymouth, Michigan. After graduating from Michigan State University with a degree in accounting, McClure worked as a Certified Public Accountant for Price Waterhouse for nearly a decade. After leaving accounting in 1991, he began selling real estate. To date, he and his partner, RE/MAX Hall of Fame Member Phyllis Lemon, have cumulative lifetime sales of approximately $500M. McClure also volunteers on the Professional Standards Committee (a self-governing body of the local association of realtors that acts in a judge-and-jury-like fashion regarding ethics complaints and arbitration disputes) of Western Wayne Oakland County Association of Realtors. He sat for and passed the State of Michigan's Associate Real Estate Broker's examination in December 1996. |
|
