Seeking a Broker

Q. With how many different brokers should one apply for a mortgage loan? I feel like I should compare, but what is the protocol for doing so? Is it appropriate to shop for two different brokers and then pick the one with the better options? How bad will it hurt your credit scores to apply with more than one broker?

A. First, shopping for a loan does not mean applying. Some will tell you they cannot quote a rate without knowing your credit, application info etc. There is some truth to that, but they should be able to tell you some information based on assumptions that you provide. Some lenders will vary the rate slightly based on credit score, but this is usually for niche loans, like stated income, no income or no asset loans etc. For general purposes, they should be able to tell you what the rate would be for your loan amount based on an assumption of credit qualifying etc. If they will not do this, then mark them off the list. If they want you to have a certain amount of work involved, credit pulled to give you this basic info, they probably do not have what you want and they are used to people leaving. People with time invested are less likely to leave and start over. You see what I mean.

If you have already put in some applications, do not worry. You are allowed a couple of weeks to shop for a loan. Inquiries from the same type of loan over the course of two weeks or so should not impact your score. However, an inquiry for a credit card, then a car, then and a mortgage would impact your score.
A few important things to keep in mind:

1.Talk to friends, family, co-workers and see who went where, how happy they were with the process and ask how much shopping around they did as well. If they did not shop around, they do not know how lenders compare, and may not have gotten a good loan themselves.

2.Online loan websites are typically more advertising to sell you as a lead to any lender that will pay $40 for your name and phone number. Take anything online with a grain of salt.

3. Decide on whom you want to call to shop for rates and fees. Do this all in one sitting, preferably in mid-morning. However, in a volatile time, rates may change not only every day, but also several times during the day. If you call one lender at 10 am, and the next at 2 pm, you may not be getting a clear idea of who has the better loan. Rates could have gone up during the day, and the second broker may actually have better rates, but you may get the impression that his is higher.

4.Do not get fooled by just shopping for rates. You must ask about all broker and lender related fees, what is include, but not limited to:

• Origination
• Discount Points (a practically interchangeable term with origination now)
• Broker fee
• Processing fee
• Underwriting
• Credit report
• Flood cert

Also ask if a survey and termite report is required. Many lenders do not require either one, but this could vary from state to state. Some fees are padding the bottom line. Many places a charge on processing fee, but when that fee goes into the $100+ range, you should question it or ask to have it removed entirely. Typically, the credit report will be in the $20-$30 range, and the flood certificate $10-$20. These two must be at cost; no money can be made on these fees. Ask about a mortgage broker fee, or anything else that may just be padding, or a way to avoid listing commonly known fees. Typically, a good bank or broker will have a short list. Origination and discount points will be a function of what you find next.

5.Ask each contact for a rate with NO POINTS and NO ORIGINATION FEE, and then ask what the cost is for the next rate down:
i.e. 5.75 percent-0-0 (no points, no origination)
5.5 percent -0-.75 (no points, .75 percent origination fee)
Ask each broker or loan officer the same thing. Just asking for a rate and not asking about the fees may land you a broker withholding a very important fee that determines the rate. Get the full picture and DO THE MATH.

VERY IMPORTANT: Think about how long you want to be in the house. Compare a rate with no origination or points to the one that is slightly lower WITH these fees. What is the payment difference? If you pay .75 percent of $200,000 to get a rate only .25 percent lower, you might not recoup your money in monthly savings for a very long time, if at all.
$200,000 @ 5.75 percent = 1167.15 principle and interest each month.
$200,000 @ 5.5 percent = 1135.58 principle and interest each month.
Savings each month: $31.57
If you paid .75 percent origination and points, that is $1500.00
It would take you 47 months to recoup that fee before any savings even gets started. You may be better off cutting the fees down. Do the math; do not assume by the lower rate that it is the way to go.

6.Know an idea of what type of loan you want. Be sure to ask questions about it, or anything else you have in mind. You only close on a few mortgages in your lifetime; you should not be expected to know all about the process. It is better to ask too many questions than too few.

7.Stay in touch with the broker or loan officer that you chose. Are you able to reach the same person on the phone with ease, or do you have to talk to someone different every time? Also, get pre-approved if this is a purchase that can shave some time off of the closing process in case you need it. Some sellers will not entertain offers without a pre-approval letter.
*If your broker or loan officer offers you a letter without going through the application process, you may want to question staying with them. It is possible to get through the loan process to the point where all you need is the contract, appraisal and title work. Then closing is easy, you have less stress and things will flow nicely.

8.Compare your Good Faith Estimate (after applying) to what you went over on the phone when shopping. Rates may have changed since then, but the basic fees should look familiar to you. Know what to expect and question any fee changes at your closing.

9Is this a refinance? If so, try to shave some of the expense where you are able.
1) Call your last appraiser to see if they might give you a break on the fee if you have not added any square footage. If they do not have to re-measure, they "might" be willing to do this.
2) Who closed your last loan? See if you can get a re-issue rate on your title insurance. You must go to the last office for this. Title insurance is usually $3 per 1000 borrowed. $200,000 loan = $600 title insurance premium. If you get a reissue rate, you might save 40 percent of that premium.
3) Ask your broker or loan officer if they can order a lower cost form of an appraisal. There are several types, especially for strong loan applicants with low loan-to-value needs, assets etc. You may be able to save $50 or $150. This also varies with the appraiser, and their own pricing standards. Some appraisals are nothing more than a drive by to see if the house is in similar condition as the rest of the neighborhood (no walk through) and a neighborhood market analysis for stability of home values. There might not even be a dollar figure put on the house.

Keep In Mind: Too much shopping can hurt your options. You can shop yourself right out of a prime rate loan. If you have let several loan officers pull your credit, then decide to go with one you feel comfortable with. Keep in mind the actual lender will pull their own credit report before funding. If your score drops again, you may no longer qualify for the rate that was underwritten and the final approval may come back with a higher rate. If you are sub-prime low credit scores; your scores may go below 500. Not many lenders want to provide any kind of loan for three scores under 500. There are some, but do not expect the same rate as someone with a 680 or 700 score. You will not get it unless you are willing to pay a few points to buy it. Unfortunately, all lenders qualify you by your credit score as to which criteria you fit, your LTV and DTR, and if you can provide full Documentation of your income, or a stated income with no verification of income. Stated always receives hits to the rate. Every loan has different criteria attached. The loan to value, the debt to ratio and so on etc. This is what borrowers do not understand, and they think the loan officer is baiting and switching. They are not. If an issue comes up that the lender decides you do not qualify for a certain loan, the only thing a loan officer can do is shop for lenders and see if any are willing to give the rate and program they thought you qualified for. If you have good credit and know your score, the loan officer can give you an idea what he or she can offer based on what you say. But do not expect them to stand by their quote if and when they pull your credit, there are other issues to qualify. Sub-prime loans can rarely be quoted exact until the lender officer gets a pre-approval. Pre-approvals have an expiration date. You should not delay getting the paper work returned to the loan officer so they can deliver. If you delay, you may not end up with the same rate. The same goes for excellent credit. Rates change daily. Loan officers do not lock a rate without the application and disclosure forms returned. You cannot go into underwriting until lender has the appraisal. You delay the appraisal, you delay your loan and rates may go up. Locked rates too have an expiration. Hope this helps.