August 3, 2007, Newsletter Issue #75: Mortgage Company, Broker, Bank, or Credit Union

Tip of the Week

While there are literally thousands of sources of home mortgages, the rule of thumb has not changed since the first home loan was granted. But there are some potential differences and things you should know:

Be comfortable with whomever you select to handle your home mortgage. Interest rates and many other basic requirements of a mortgage application are determined by the “secondary market”, the entity that buys mortgage loans, so the differences are minor. There might be more (or occasionally less) expense if you deal with a mortgage company or broker. This is not an absolute truth as you can sometimes save money. But the reality is that a bank or credit union, with many other sources of income, has the ability to be less expensive to deal with. Mortgage companies and brokers do not offer installment loans, credit cards, education loans, etc., nor can they accept deposits (a wonderful source of low cost funds), so their total income is directly tied to the number and amount of mortgage loans they make. The best idea is to shop around many sources and examine pricing and service. If your first choice is a bank or credit union, make sure you have access to a “full menu” of loan options. Some banks and credit unions offer a more “vanilla” selection, while most mortgage companies and brokers usually have a very extensive menu, sometimes giving you more flexibility depending on your credit status, income situation, cash position, and plans for the future. Find out if your mortgage will be sold by your lender. Most mortgages are sold but many are still serviced by your original lender, which simplifies the long-term process. Many banks and credit unions will keep servicing your loan, even if they have sold it (if they just sell to Fannie Mae and Freddie Mac, they must continue to service your loan). Instead of making payments to one mortgage company for six months, then another for the next year, etc., you can continue to make your payments to your lender for the long-term. This should not be a decision maker it should be considered part of your selection process. The bottom line should always center on your becoming knowledgeable about the mortgage loan process, rates, terms, costs, and long-term relationships. Along with being the largest financial commitment most people ever make, a mortgage loan is also a personal and emotional investment. Treat it as such and you will have few problems.

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