I just saw an ‘ad’ that came from the Royal Palm Association of Realtors that called mortgage brokers “middlemen” which I took as a dig against mortgage brokers, while the person in the ad stated: versus a “traditional bank or mortgage banker like himself” making it sound like that is better.
That is very interesting way of comparing Mortgage Brokers vs. Direct Lenders or a Bank.
I have a much straighter comparison, I am a Mortgage Broker, who only works with Wholesale lenders to get the borrowers the best rates and fees available for that borrower, I am not a Bank or a Direct lender with Retail rates that only has access to a limited number of loan programs that the particular bank or direct lender has access to, and that are often riddled with ‘overlays’ (direct lenders act as a bank but are really ‘middlemen’ and sell the loan immediately after it closes).
I have two simple questions for all prospective borrowers: Who would you rather originate a mortgage with, a ‘Wholesale broker’ or a ‘Retail lender’ that is, wholesale rates vs. retail rates?
Secondly, who do you think has access to the lower mortgage rate almost every single time, a wholesale broker or a retail lender?
Not only are the rates typically better with a Mortgage Broker, moreover, wholesale lenders do not have crazy overlays that can actually hurt the borrower financially with additional costs and fees.
For instance, did you know that Conventional mortgages (FNMA and Freddie Mac) allow a borrower’s credit score to go down as low as a 620 middle FICO score, but if you go to a bank or direct lender, they can only go down to a 640 FICO score for a conventional mortgage, because that is one of their overlays; I’m sorry, that is just not being truthful to the borrower.
That is, if you are working with a bank or a direct lender and have a middle FICO score of 639, a bank or directly lender will not tell you ‘They cannot do a conventional mortgage with a score under 640.’ What you will hear is you have no choice but to go with an FHA mortgage because your score is a 639, which again is not accurate or truthful.
For the record, I love FHA products and use them when appropriate, “if you have to use it.” However, an FHA comes with additional costs because they are considered a riskier loan product. Such as, FHA originations have an up-front mortgage insurance premium of 1.75% of the loan amount, which equates to $1,750 per hundred thousand borrowed; so, if you have a loan amount of let’s say, $250,000 and you only qualify for an FHA origination, you will have an additional $4,375 added to you closing costs, that’s a lot of money! If you qualify for a conventional mortgage with a 639 FICO score (down to 620), the borrower does not have to pay that fee or have it added to the loan amount! Crazy right!
Like I said, I love FHA, if you have to use it, but I personally do not think it is right to not properly inform the borrower of who can or cannot originate that type of loan, as it can get costly to the borrower really quick, just so someone can make a quick buck.
If you have any questions about this commentary or would like to hear more, please reach out to me at your convenience for ‘straight-talk.’ Best wishes and happy borrowing! -M
