The major strength of mortgage brokers is that they can shop the wholesale lenders for which lender has the best rate much easier than a borrower can on his own.  They also learn the "hot points" of certain wholesale lenders and can handpick the lender for a borrower which may be unique in some way.   He will be able to advise you whether your loan should be submitted to a portfolio lender or a mortgage banker.  Another advantage is that, if a loan gets declined for some reason, they can simply repackage the loan and submit it to another wholesale lender.

One additional advantage is that mortgage brokers tend to attract a high number of the most qualified loan officers.  This is not universal.   Mortgage brokers also serve as the training ground for those just entering the business.   If you have a new loan officer and there is something unique about you or the property you are buying, there could be a problem on the horizon that an experienced loan officer would have anticipated.

A disadvantage is that mortgage brokers sometimes attract the greediest loan officers, too.  They may charge you more on your loan which would then nullify the ability of the mortgage broker being able to "shop" for the lowest rate.

WHOLESALE LENDERS

Borrowers cannot get access to the wholesale divisions of mortgage bankers and portfolio lenders without going through a broker.

When Realtors or Builders Recommend a Lender

If your Realtor or builder make a suggestion for a lender, be sure to talk to that lender.  One reason Realtors and builders make suggestions has to do with the fact that they have regular dealings with this lender and have come to expect a certain amount of reliability.  Reliability is extremely important to all parties involved in a real estate transaction.

On the other hand, a recent trend in mortgage lending has been for real estate companies and builders to own their own mortgage companies or create "controlled business arrangements" (CBA's) in order to increase their profitability.  These mortgage brokers sometimes become used to having what is essentially a "captured market" and may not necessarily offer you the lowest rates or costs.  Some real estate companies also offer different types of incentives to their Realtors to recommend their comany-owned mortgage and escrow companies or lenders with whom they have CBA's.   Dealing with one of these lenders is not necessarily a bad thing, though.  The builder or real estate company often feel they have more ability to expedite matters when they own the company or have a controlled business relationship.  They cannot usually influence the underwriting decision, but they can sometimes cut through "red tape" to handle problems or speed up the process.  Builders are especially forceful on having you use their lender.  One reason is that there are certain intricacies in dealing with new homes.  If you use a loan officer who usually deals with refinances or resale home loans, he may not even be aware of how different it is to close a mortgage on a new home and this can lead to problems or delays.

It is in your interest to know if there is any kind of ownership relationship or controlled business arrangement between the real estate or builder and the lender, so be sure to ask. Do not automatically disqualify such a lender, but be sure to be more vigilant on getting the best interest rate and the lowest costs.

CONCLUSION

Make sure to do a little shopping for yourself.  By knowing the interest rates of the market and making sure your loan officer knows you are looking at rates from other institutions, you can use that as leverage to  make sure you are obtaining the best combination of service and lowest rates.

copyright 1999, RealEstate ABC