November 13, 2009, Newsletter Issue #193: Mortgage Broker/Company or a Bank?

Tip of the Week

There is no single correct answer or best choice when it comes to choosing a mortgage broker, mortgage company or bank to initiate your loan. Your choice depends primarily on

The total cost to close the loan you want. Your level of comfort with the broker or lender. Assuming a broker, mortgage company, and a bank are offering the same product at the same interest rate and term, the total cost to close this loan is critical to you. Closing costs can vary widely, particularly in the area of points charged and so-called “junk fees”, so you need to consider these carefully with any choice decision. You will receive a Good Faith Estimate (GFE) of closing costs within 72 hours of making your application. But it is good business for you to ask for a preliminary GFE BEFORE you make a formal application.

Points are the fees charged by the lender to make the loan and may be stated as “Discount”, “Origination Fee”, or “Points”. One point equals one per cent of the mortgage amount. If you’re applying for a mortgage of $185,000, one point would equal $1,850.00, two points would be $3,700.00. Junk fees come in a variety of flavors and normally go directly to the mortgage source to offset their costs or increase their income for your loan. You might see fees such as

Underwriting fee Processing fee Warehouse fee Document preparation fee Document review fee File preparation fee. These are fees associated with your mortgage source company, not necessarily with the mortgage lender (if they are different, as often happens). For obvious reasons, you want to keep these junk fees to a minimum as they provide no added value to you.

Comfortability is the other primary factor to consider. A mortgage is a large, complex transaction. The experience, knowledge, efficiency, and integrity of the mortgage source are very important. Since you are not the expert in this transaction, you want to be comfortable that you are dealing with a professional, who has your best interests, not his/her own, as their primary focus.

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