Plenty of mortgage lenders are eager and willing to accept your loan application, but that doesn’t mean they are a good fit for you. Because you will be tied to your mortgage for years, you need to make sure to take the necessary precautions to ensure you will be happy with it in the long run.
To properly vet lenders, you need to be equipped with the right questions to ask and details to keep an eye out for.
Questions to Ask
There are four questions you want to ask any mortgage broker you are considering working with:
How are you compensated?
How long have you been in business?
How do you handle rate locks?
Can I get any references?
How Are You Compensated?
Mortgage brokers make money in two primary ways: fees and yield spread premiums. Fees usually come in the form of points, where one point equals 1 percent of the loan amount. Most brokers list this as the mortgage broker commission or lender’s origination fee. Additionally, find application, funding, document preparation, processing, and other fees are included.
Yield spread premiums work differently. Say, for example, that you qualify for a loan at 7 percent interest, but the broker convinces you to take a loan at 8 percent. As a result of this, the lender pays the broker several thousand dollars. The payment made from lender to broker is the yield spread premium. While yield spread premiums are not an intrinsically bad thing, they primarily help the broker and lender rather than the borrower.
How Long Have You Been in Business?
While even a rookie mortgage broker can get you a good deal, quality assurance only brokers who rode the surf long before the current refinancing waves can establish quality assurance. It doesn’t take 10 years of experience to be able to navigate the waters, but the experience doesn’t hurt. Unless extraordinary circumstances are at play, three or more years of experience will suffice.
How Do You Handle Rate Locks?
Some brokers take their chances gambling with rate locks. When you tell them what rate you want to lock on, they will agree to it verbally. Afterwards, they go looking for lower rates, intending to keep the difference for themselves. In order to avoid this, ask for a loan commitment letter from the lender. This should outline the interest rate, the date you locked the the rate, and when that lock expires.
Can I Get Any References?
If you found your broker from an advertisement or decided to walk in after driving by every day, ask for the contact information of the most recent two or three customers who closed their loans. Follow up with those references by calling them and asking how they felt the broker treated them. Specifically, ask if they would do business with the broker again.
Knowing what to ask once you’ve found a potential broker doesn’t help you find one. Here are two important steps to include in your game plan.
Have a friend who recently bought a house? Is your neighbor a real estate agent? Ask who they worked with in the past, and who they would recommend. Real estate agents who interact with mortgage brokers regularly are especially helpful.
Research Brokers Online
You would be hard-pressed today to find a serious mortgage broker who did not have a portfolio available online. This goes for both individual brokers who work alone and those who are part of a larger firm. Put a list together of the brokers you find online and do some vetting. The Nationwide Multistate Licensing System (NMLS) has an online registry you can use to look up whether a broker has had any punitive legal actions taken against them in the past.
Need Help? Let’s Talk
Take your time and do your research. When you do find options, don’t be afraid to sit down and ask direct questions to learn about your potential broker.
To make Seattle Mortgage Planners an option on your list, call (206) 799-9966 or write to us on our Contact page.
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