Differences between a lender and a mortgage broker
Now-a-days, the differences between a lender and a mortgage broker are few and far between. A lender is usually a bank, credit union, or other lending institution. They normally offer several types of loans and a variety of other financial services including checking and savings accounts. All the loans that are offered originate from the lender and representatives handle the processing of the loan. There is slightly less risk when going with a traditional lender due to the rise in predatory lending. The mortgage broker acts as an independent agent for various wholesale mortgage companies. The broker then shops for the loan that best suits their client's needs at the best rate available and then acts as a liaison through until the closing. The broker's fees can be disclosed up front which is also beneficial.
Choosing a mortgage broker
Most people use a mortgage broker instead of a traditional lender due to the possibility of lower interest rates or if they have difficulty getting approved by a traditional lender. Once you have decided to buy a home and you have your financial ducks in a row, the best thing you can do is get referrals and take your time to shop around for the broker that is right for you. Once you locate a few prospective brokers find out how long they have been in business and contact the Better Business Bureau or even the Attorney General if you have any suspicions. Make sure they offer a "good faith estimate". A good faith estimate outlines all the closing costs and can be available in as little as three days after applying for the loan. This is similar to the concept of the upfront broker who will also disclose all closing fees before the mortgage process begins. Most importantly find out about the rates they are offering you including the amount of points you'll have to pay up front.
Predatory lending and mortgage fraud
Because of the existence of predatory lending, a borrower should be very selective when choosing a broker. These unethical lenders use loopholes in the law as avenues to increase their profit. Mortgage fraud has also been more prevalent as imprudent lenders turn an eye away from such “liar loans.” These loans only hurt the borrower in the long run.
Look out for some of the tactics predatory lenders use:
-Attempt to sell a home above market value at an unfounded appraisal price.
-Convince the borrower to continually refinance.
-Encourage signing contracts that are invalid or have false information.
- Outrageous fees only brought to your attention at time of closing.
- Agreements are not put in writing.
-Approve a buyer knowing that they are not financially capable.
