It's important to keep the possibility in mind that you could be on the hook for other hidden homeownership expenses and plan well in advance. Here's how.
You’re about to go shopping for a new home. If you already are and you don’t have a mortgage pre-approval, stop, read this, and get one. A mortgage pre-approval not only helps you to know what you can afford, but it also gives a little comfort to a seller that you’ve at least made it through the first hoops to be able to buy their home. This can give you an advantage when there is more than one offer.
Now you’re going out to get your pre-approval, and you have an account at one or more of the big banks that do home mortgages. Why not just use the bank where you have a pre-established relationship? First, your relationship isn’t going to help you at all. If you have savings there, any lender will consider them in your assets for mortgage approval. If you’ve paid off loans or have an excellent payment record there, that information is on your credit report.
Your big bank mortgage division probably has some interesting mortgage products, maybe even one of them is right for you. However, you definitely should consider using a mortgage broker. These are lender representatives, not the lenders. The advantage is that they work with a number of different lenders as well as the big banks. Their value to the borrower is their relationships with multiple lenders and investors. A good mortgage broker will develop relationships that cover many of life’s financial situations.
The mortgage broker has flexibility in meeting your mortgage needs with a loan that could be a better fit than the pre-packaged loans from your big bank. This isn’t always the case, but often there are situations that can be better served with a loan from specialty lenders or even investors. Mortgage origination is a competitive business like any other. If you have good credit and can qualify, there is going to be more than one lender interested in giving you a mortgage.
This is especially true if you are a young professional, perhaps in the medical or legal fields. You may have some student loans. If you’re buying in a high priced market, mortgage brokers often have relationships with lenders and investors that specialize in your situation.
Even the big banks can have mortgage divisions that broker loans if a product is needed that isn’t in their loan inventory. Doesn’t adding this middle-person into the mix raise the cost of getting a loan? Yes, the broker gets paid for their delivery of a borrower to a lender. However, often they have sources that are competing for your loan, and the net result is no worse and can be better than just walking into your bank.
One other thing you’ll want to ask, though it shouldn’t be a deal-breaker, is if the lender services their own loans or sells them. Many will immediately sell the loan to another lender, and your loan may pass through more than one lender before settling into a servicer where you’ll make your payments.
Your bank may work just fine for you if you have no special situations, such as student loans, a new professional career, or a high-end market. If you are in one or more of these situations, check your options, and sometimes the lowest interest rate may not be the best solution.