Is Shopping For Mortgage Recommended?
Shopping for mortgage is somewhat different than shopping for other goods and services. For example, it is highly recommended that you shop for a car, whether it is a new car or used car, because there are no regulations with how much a car dealer marks up on a car. A car dealer can purchase a car at an auction for $1,000 and can turn around and re-sell it for $5,000 and not be in any violations of state or federal laws. With shopping for mortgage, it is different. The mortgage business is extremely regulated and there are strict laws and regulations on how much a mortgage broker can charge a home loan borrower. A mortgage broker, different than a mortgage banker, is a broker who makes a commission by the mortgage lender for helping a home buyer or homeowner get a home loan and close on their mortgage loan. Mortgage brokers get paid a yield spread premium, the same as a commission, for their services. The yield spread premium needs to be disclosed and the maximum yield spread premium a mortgage broker can make by law is 3% which includes fees and costs associated with the origination and closing of a mortgage loan. Most mortgage brokers have a yield spread premium capped at 2.5% or 2.75% so they have a cushion of other fees and costs associated with the loan factored into the maximum 3.0% cost cap that is required. Mortgage brokers do not use their own money to fund mortgage loans and act as brokers and have access to wholesale mortgage lenders for funding. Mortgage bankers are mortgage companies that have their own warehouse line of credit and fund mortgage loans with their lines of credit and re-sell their funded closed loans back to Fannie Mae. Shopping for mortgage can be beneficial for mortgage loan applicants who have perfect credit but may not be so beneficial for those who have less than perfect credit or other credit, debt to income, or financial issues.
Shopping For Mortgage Rates
As mentioned earlier, shopping for mortgage is different than shopping for other goods and services. The mortgage business is highly regulated and is credit score driven. Many mortgage companies cannot pick and choose mortgage rates quoted to mortgage loan applicants. The higher your credit scores, the lower your mortgage rates. Most mortgage companies have comparable mortgage rates. For example, if your credit scores are under 600 FICO and you have prior derogatory credit and recent late payments, you can shop all you want but the chances are that you will not get the best mortgage rates. Mortgage applicants with credit scores under 600 FICO will be fortunate enough to even get a solid pre-approval from a mortgage lender. Due to mortgage lending guidelines, a borrower with under 600 FICO credit scores will not get sub prime rates. It will be slightly higher than those with perfect credit, maybe 0.50% to 1.0% higher. For those with 740 FICO credit scores, they can expect the best mortgage rates.
Always Get Second Opinions
If you are seeking a home loan, it is always recommended that you speak with several mortgage loan officers and choose the person that you feel most comfortable with. Whenever a mortgage loan officer quotes you a rate, remember that the rate quoted is not totally accurate unless the loan officer locks your rates. Mortgage rates can change several times during a day and the mortgage rate you get is dependent on your credit scores, type of property you are financing, and the area you are in. Mortgage rates are pretty much all similar whichever mortgage company you choose because mortgage companies all get the funds from the same place and sell it to the same place.
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