What's
the difference between: a thrift, a mortgage banker, and a mortgage
broker?
Thrifts are mutual savings banks and savings-and-loan associations,
typically the kind of corner bank where your parents probably
got their mortgage. Thrifts offer savings accounts and other services
as well as mortgages. Mortgage bankers do nothing but lend money.
Mortgage brokers are not bankers and have no money of their own
to lend. They act as middlemen, working with a number of lenders
to find a loan to match a particular borrowers needs. By state
law, brokers work for the borrower.
Will a mortgage broker be able to find me a better rate than a
mortgage banker?
Mortgage brokers work with many lenders including commercial banks,
thrifts, and mortgage bankers. Brokers may also have access to
lenders who don't have an office located in your state, but are
licensed to lend money there.
But the mortgage broker has to be paid. Doesn't this mean I automatically
pay more for this loan?
It shouldn't because the broker is processing the paperwork, so
it cost less for the lender to make the loan. In return, the lender
discounts the loan to the broker. For example; a borrower who
finds a loan on their own many pay 7.5 percent with two points
(One point is equal to 1 percent of the loan amount.), but the
broker receives the loan for 7.5 percent with one point.
True, the broker then adds a fee to the loan, if its one point
using the above example the borrower has benefited from the broker's
service with the discount covering the fee. By state law, both
the broker's fee and the discount the broker is getting from the
lender must be disclosed up front to the borrower.
Should I forget the type of institution and focus instead on who
advertises the lowest rate?
You can, but you have to remember that there is no guarantee you
will get the rate advertised. It may be good for only 30 to 60
days and it probably will take you longer than that to close.
To get a loan with what's called a longer lock in period, you
usually have to pay a higher rate.
In addition, interest rates can change daily. The better way to
compare is to ask each lender what the rate would be if your closed
in 90 days or whatever your timetable is. Also, get everything
in writing.
What documents do I have to provide?
Be prepared to provide verification of income (including a pay
stub and the previous two years tax returns), bank account numbers
and details of your long-term debt (credit cards, auto loans,
child support, etc.). If you're self employed you may also be
required to provide financial statements for your business. Lenders
want specific information. For example, the origin of your down
payment will be queried.
Does it make sense to prepay my mortgage or should I use the money
to invest elsewhere?
That depends on the cost of the mortgage, your appetite for risk
and your age. Prepaying shortens the term of the loan, saving
you thousands of dollars of interest. "As a general rule,
on a 30 year mortgage, you save $3 for every $1 prepaid"."
"On an After-tax basis, you get back $2 for ever $1 you prepay."
It's and easy, risk-free investment. Just round your monthly payment
up to the nearest $100: if you pay $883.50, write the check for
$900.
If your mortgage
costs 8 percent a year, that's what you'll earn on your prepayment.
Compare that return with what you'd earn in other comparably safe
investments, like a CD or paying off credit cards (If you pay
18 percent on credit cards don't even think about prepaying a
8 percent mortgage instead.)
Note. Notify your lender if your personal or financial status
changes between the time you submit and application and the time
its funded. If you change jobs, get an increase or decrease in
salary, incur additional debt, or change your marital status,
you must let the lender know.
