BANKS OR BROKERS?
Be sure to ask lenders questions.

   With interest rates continuing to be at an all time low, many of us are either taking the plunge and purchasing investment property, or refinancing our primary residences. According to the Mortgage Bankers Association of America, in 2003 a record 6.8 million homes will be sold, which is a 4.4% increase over 2002, which was the previous record year. At the end of July an MBA survey reported that 79% of this year’s conventional loan applications were refinances, and their prediction is that mortgage originations for 2003 will exceed $3.3 trillion!

  
   With borrowing in full swing around the country, it can become confusing when looking at different options. Should you use your bank or a broker for your mortgage, and what product should you choose?  Here is where an experienced lender comes into play.

   More than half of us mortgage borrowers get their loans through brokers instead of banks. The main advantage of using a broker over a conventional bank is that a broker can shop among various lenders to find you the best deal. If you decide on a broker rather than a bank, here are four questions to ask a broker that you are thinking about dealing with.
> Can I get references?  If you did not find the broker through a referral or reference from a friend or your real estate agent, be sure to ask for references.  Ask for the names and contact information of their three or four most recent customers, then follow up with a phone call to those people.  Would they do business again with this broker?

 > How long have you been in business? This is not to say that you should not use a brand new broker, but make sure the person just didn’t jump into this to take advantage of the current refinancing wave. Ideally it’s best to choose a broker that has been doing business for at least three years.

> How are you compensated? Mortgage brokers get paid two ways: fees and yield spread premiums. The brokers fee often comes in the form of points. One point equals 1 percent of the loan amount. On the loan documents you might find it listed as the lender’s origination fee or mortgage broker commission. The yield-spread premium is a controversial way to compensate brokers. Let’s say you qualify for a loan at 6 percent interest. The broker persuades you to take a loan at 7.5 percent. The lender pays the broker a bonus for signing you up for the higher-rate loan. That payment is a yield spread premium When you get your good faith estimate of closing costs and your HUD-1 statement of final costs, scrutinize the items in the 800 section near the top of page 1. Ask your broker to explain the numbers.
> How do you handle rate locks? Some brokers may gamble with rate locks. You tell the broker to lock a certain rate on a certain date, and the broker tells you over the phone that your rate is locked. Secretly, the broker doesn’t lock the rate, hoping that the rates will drop before your closing date. If rates drop, the broker can lock at the lower rate. You pay the higher rate that you locked at, and the broker can profit from the difference. The safest way to avoid this is to ask your broker for a loan commitment letter from the lender. It should have the lender’s name and specify the interest rate, the date the rate was locked and when the lock expires.

    Whether you choose a bank of a broker, the most important thing to remember is that you should feel comfortable with the person you are dealing with. You should be treated fairly, and the lenders good faith estimate of closing costs should be accurate. Your real estate purchase is an important investment, and should be treated as such by your lender and broker.