Buying a home can be an intimidating and seemingly daunting process. Whether you are a first-time home buyer, or have been a homeowner for an extended period of time, the following provides a useful guide to help you make an educated home buying decision.
Before you begin your home search, you should obtain a pre-approval from a bank, mortgage broker, or finance company. A pre-approval indicates that your credit qualifies you for a residential mortgage loan, and sets the maximum dollar loan amount you are eligible to borrow based on your income.
How do I obtain a pre-approval?
The first step towards obtaining a pre-approval is to submit an application with a licensed Mortgage Loan Originator (MLO). Most MLO’s are employed by a major bank or credit union, but you can also apply through an independent mortgage brokerage, such as Mariner Finance, or mortgage broker. Remember to make sure that the broker/company you are applying through is licensed with the Nationwide Mortgage Licensing System (NMLS). Every licensed business entity, and individual broker, is given a unique identifier number. You can check if a person and/or company is licensed here.
What is a mortgage broker, and why should I use one?
A mortgage broker is a licensed MLO, who instead of working directly for a bank, credit union, or finance company, works independently and “shops” around at a variety of different lenders (banks, credit unions, finance companies, etc.) to find you the best interest rate. For example, you apply for a mortgage directly at Bank 1, who approves you for a maximum mortgage of $150,000 at 5.5% interest. You submit a second application at Bank 2, who also approves you for a maximum mortgage of $150,000, BUT at an interest rate of only 4.9%. If you use a broker, you submit one application (to the broker), who in turns sends your application to EVERY mortgage lender, all of whom issues you a maximum approval amount at a certain rate. The broker is able to use this information to get you the best rate, without you having to manually apply with multiple lenders.
When shouldn’t I use a broker?
Using a broker can be extremely advantageous, as they essentially do all of the hard work for you, but there are potential pitfalls to using a broker. You should be wary of any broker that charges you an up-front fee for their services; you should not have to pay anything out of pocket for them to obtain an approval for you. If one attempts to do so, simply decline their offer and withdraw your application with them. Mortgage brokers are paid once your loan closes (you settle on your home), and are paid through your loan proceeds (not directly by you). A broker’s commission on your loan comes from the number of points that were charged on your loan, or “point spread.” A “point” is simply one percent of your loan amount.
How many loan points are too many?
It’s very rare to obtain a mortgage loan with zero points, even if you do not use a broker, as most lenders charge points even when you apply directly with them (although it’s termed differently, and is called an “origination fee”). In general, you should not pay more than one point. Be wary of dishonest brokers who may try to charge you excessive points. Since points are financed into your loan and you don’t pay them up-front, it can be very easy to simply overlook them on your pre-disclosures. The good news is that any points charged to you are tax deductible.
While buying a home can be a stressful and confusing process, Mariner Finance is here to help. We have an expertly skilled mortgage team readily available to help you with all of your mortgage needs, including mortgage loans, home refinancing, and more. Simply call 866-382-5080 today to speak with one of our licensed loan officers, or click here to learn more!