When you begin your search for a new home loan, one of the first things to
consider is where youll get the money. Your basic choices will be mortgage
brokers and banks.
Your first instinct may be to go with your local bank, who you know from
doing business with them for other things, such as your checking and saving
accounts. But youve probably also heard that mortgage brokers can get you a
better interest rate, since they deal with hundreds of lending sources. It can
be confusing, but there’s a third source of funding that combines the best of
both--the correspondent lender.
In order to understand the differences, let’s look at how the lending process
works in each case. Mortgage bankers are given rate sheets by their
institutions, telling them what interest rates they can quote to their clients
on any given day. There’s only so much a bank can do, with regard to interest
rates, because it needs to remain profitable in order to stay in business.
Mortgage brokers have an advantage in that regard. Theyre not loaning their
own money, and are free to "shop your loan around," looking for the best terms
from various lending sources. They make their money by getting loans at discount
prices and then marking them up, making money on the difference. Since they have
many sources to choose from, they can often find loans at lower rates than most
banks.
The third alternative, correspondent lenders, combines the best features from
both groups. Correspondent lenders are similar to mortgage bankers in that they
make the lending decision and fund the loan with their own money or credit line.
However, as soon as a loan has closed, it’s sold to another lender at a
previously negotiated price. It’s the best of both worlds for you as a borrower.
Youll be dealing with the banker who is funding your loan, yet that banker is
able to shop your mortgage around, which can obtain you a lower interest
rate.
Correspondent lenders can sometimes be difficult to find, since theyre
generally smaller institutions, operating on a regional basis, and it can be
hard to tell whether a lender is a broker or a banker, based solely on the
company’s name. One way to find out is by visiting the lender’s website, if they
have one. Youll normally find a button you can click that will bring up a page
containing a detailed description of the company. If the lender doesnt have a
website, you may find their phone number in the Yellow Pages.
Although they may not always be easy to locate, with a little digging, you
may find that a correspondent lender offers an attractive alternative to a
banker or mortgage broker when it comes to shopping for your next home loan.
Copyright © 2005 Jeanette J. Fisher All rights reserved.
