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mortgagebrokerExcerpted from an article by Jeff Ostrowski for realtytimes.com

“When you’re ready to get a mortgage, you face an array of choices:  Fixed rate or variable?  Points or no points?  Mortgage broker or mortgage lender?  That last decision involves a simple but easily misunderstood distinction.

Simply put, a mortgage broker is an independent professional who can shop around to find deals from a variety of lenders.  A mortgage lender is represented by a loan officer who can speak only for that institution’s produce line.

What does that mean for the borrower?  As a practical matter, a mortgage broker can present you loan packages from multiple lenders – like Wells Fargo, Chase and Quicken loans.  The loan officer from Wells Fargo, on the other hand, can pitch only Wells Fargo mortgages.  The advantages of dealing with a lender include reliability and reputation.  With a broker, you have greater flexibility.  Based on your financial profile, the broker may also line you up with a lender where you’re most likely to qualify for the loan.

When in doubt, comparison shop.

So, which to use?  There’s no clear answer, says Eric Tyson, author of Personal Finance for Dummies and co-author of Mortgages for Dummies.  “I’ve seen people be happy using either option”, Tyson says.  “The important thing is to shop around.”  He suggests soliciting loan packages from a mortgage broker and a couple of lenders, then judging which proposal offers the best deal based on rates and fees.  In the end, whether to use one or the other depends in part on your finances.  If you have stellar credit and steady income and you’re shopping for a plain-vanilla loan, mortgage rates and loan fees are unlikely to vary much from one lender to the next.

If, on the other hand, you have spotty credit, you’re self-employed or have an otherwise-tricky profile as a borrower, you may find the number of mortgage lenders willing to do business with you is more limited.  In that case, it can be more convenient to use a mortgage broker.  After all, they make a living from their knowledge of various loan products.

Laws offer protection.  Unfortunately, the image of both mortgage brokers and lenders was tarred by a minority of unethical practitioners who built an unsavory reputation for themselves during the housing bubble; those excesses have largely gone away, however.  The Consumer Financial Protection Bureau, created in 2010 to ride herd on the mortgage industry, released guidelines in 2014 that included a ban on “steering” – that is, on financial incentives for loan officers to push you into a loan you can’t afford.  Lenders have stopped offering some of the risky loans that drove the housing bubble, and mortgage lenders and brokers operate under heightened level of scrutiny and disclosure.

Tipping the negotiation in your favor.  Whether you opt for a mortgage broker or lender, the paperwork burden will be similar.  Both will run a credit check, and both will ask for tax returns, pay stubs, bank balances and other information required for the the lender’s underwriting process.

Payments for brokers and lenders are different, and understanding how the broker or loan officer is paid may help you land a better deal.  Mortgage brokers are typically paid a commission by the lender – usually 1 percent to 2 percent of the amount of the loan.  For loan officers at banks, compensation models vary.  The might be paid a commission, but they typically collect a salary plus bonus.  To win your business, a mortgage broker might be willing to negotiate his fee…and the larger the loan, the more negotiating power you may have.”

SOURCE:  Jeff Ostrowski for realtytimes.com

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