Because purchasing a home is one of the most complex financial transactions a consumer will make in his or her life, it’s no surprise that mortgage loan originators (MLOs) are constantly being asked for advice or clarification about the confusing, ever changing mortgage industry. We’ve compiled some of the most basic frequently asked questions about the difference between securing a loan from an independent loan officer versus a bank, mortgage rates and down payments.
Kathy Gyselinck is Executive Vice President for Southeast Mortgage
Q: What is the difference between securing a loan through a large bank versus through an independent loan originator?
The customer service and service offerings is the main difference between bank and non-bank lenders. Though it may be cliché, you won’t be just a number to an independent lender, unlike at most banks. Because banks only have access to a strict number of loans they only offer insight on those types of loans. Non-bank lenders have access to a broader pool of loan types and can advise borrowers on the best loan for their specific situation, regardless of whether the lender offers that loan.
At a bank, the loan officer merely hands off the borrower’s application to the underwriting department, which doesn’t work as a representative for the borrower. A non-bank lender works directly with the underwriter to best ensure loan approval. Lastly, contrary to popular belief, rates aren’t necessarily more expensive through an independent loan officer.
“In fact, in many cases, the rates are somewhat lower, partly because independent mortgage [bankers] typically have more loan sources available to them compared to the big banks, which usually just have a handful of loan products to offer prospective homeowners,” said Forbes in “Secrets of a Mortgage Loan Officer.”
Q: Tell me more about fixed rates versus variable rates.
Many consumers know the basics of fixed vs. variable-rate mortgages. A fixed-rate mortgage offers a straightforward monthly interest rate and monthly loan amount that remains consistent for the entire term of the loan while a variable-rate mortgage (also known as an adjustable-rate mortgage) is a type of loan in which the interest rate fluctuates as market rates change. However, many consumers are unsure of which loan is best suited for them. Fixed rates are ideal for homeowners who plan to stay in their house for many years and prefer the stability of unwavering payments rather than the unpredictability of variable rates. Adjustable-rate mortgages are a good option for homebuyers who plan on staying in the house for a few years, allowing them to save money on interest payments in the short run.
Q: Is 20 percent still the golden standard for a down payment?
The short answer: Yes. A smart rule of thumb is always try to put 20 percent down. Although there are many loan options, which require smaller down payments, having a 20 percent down payment helps you establish instant equity in your home. Plus, you’ll avoid private mortgage insurance (extra insurance that borrowers usually must take on when their down payment is less than 20 percent). A 20 percent down payment can potentially save you tens of thousands over time with your lowered interest rate and, of course, you’ll have a smaller monthly payment.
Have a question that wasn’t answered? Email info@southeastmortgage.com and we’ll try to address your questions in an upcoming column!
