Choosing a Colorado Mortgage Lender

When looking for a Colorado mortgage lender, should you use a mortgage banker or a mortgage broker? And what's the difference, anyway? Mortgage bankers lend money to home buyers directly. A Colorado mortgage broker finds money for homebuyers, but mortgage brokers do not lend money. Which should you choose? Well, 65% of Americans choose mortgage brokers like me to assist them in finding the money they need to buy the house they want. Why are two-thirds of Americans choosing mortgage brokers over mortgage lenders? There are two primary reasons. First, you will often pay less going with a mortgage broker. Second, the process many times goes more smoothly. Let's look at why that is. Big banks offer home loans directly to consumers. They do this in a variety of ways. Some of them have retail shops set up in malls, or you might just go down to their physical location, walk through the doors past the tellers, and grab a free cookie on your way to sit down and speak with a loan officer face-to-face. On your way into the bank you just walked by a lot of overhead. Those cookies aren't free, and all of the people working in the bank including your loan officer are salaried. The bank president draws a fat salary too. In short, big banks have a lot of overhead costs, and you pay for those costs when you obtain your home loan through a traditional bank. A while back banks got smart and realized that they could outsource to mortgage brokers. They save money on office expense, salaries, retirement, insurance, utilities, coffee cups, staples and the like if they have mortgage brokers do all the work. All they have to do is approve the loan application and cut the check. Some banks do both. They offer retail loans at retail prices through their traditional operations. They also offer home loans through mortgage brokers at wholesale prices. And then some lenders offer money solely through mortgage brokers. As you can imagine, it gets a bit more complicated than this, but this is the long and short of it. Let me give you an example of why most Americans choose to work with mortgage brokers over working directly with lenders. When I bought my first home I went directly to the lender. In my case this was a big mistake. My loan officer set me up with a 30-year mortgage on my new home which cost $146,000. This was the first mistake. Most people today don't plan to live in a home for 30 years. But banks charge more for 30-year loans than they do for adjustable rate loans or for hybrid loans. Loaning someone money that won't be fully returned for 30 years is a huge commitment for a lender. As you can imagine, if a bank is going to make that type of long term commitment, they charge a premium. My loan officer probably should have offered me a hybrid loan—a 5/1 mortgage loan, for example. In a 5/1 loan the interest rate is FIXED for the first 5 years, after which the rate adjusts. I planned on living in my first home for 2-3 years and then upgrading to something better, so a 30-year loan was a waste of money in my case. A 5/1 loan would have been perfect for me. Unfortunately, I didn't know that such a loan even existed, and my loan officer failed to educate me. If I had lived in my first house for 5 years and had a 5/1 loan, I could have stayed with that loan if the adjusted rate was competitive or refinanced after 5 years to get a better rate. The reality is that I only lived in the house for two years, so a 30-year fixed loan was a poor choice in my case. The second mistake that my loan officer made was that he put me in a 90/10 loan. That means that I put 10% down and financed the remaining 90%. He neglected to tell me that by making less than a 20% down payment that I was required to pay for private mortgage insurance. Private mortgage insurance (PMI) protects the lender in the event that the borrower defaults on the loan. It's required by law if you put down less than 20%. There is a perfectly legal and ethical way to get around paying for PMI. My loan officer should have offered me an 80-10-10 loan. That would have been comprised of an 80% first mortgage, 10% second mortgage, completed by my 10% down payment. In this case PMI isn't required. Don't be concerned if you don't fully understand what PMI is; just know that I didn't need to pay for it, and a lot of borrowers can easily avoid PMI. A good mortgage broker knows these things. Another mistake on my part was going directly to the lender given that I was self-employed. Self-employed borrowers can oftentimes get a better deal by going with a niche lender who likes to lend money to self-employed individuals. Last but not least, I got a retail rate on my home loan. Could I have done better? Probably. Did I get cheated? No. I just paid too much. Being ignorant cost me a few thousand dollars, but you live and learn, right? In essence, mortgage brokers know where the money is. Their job is to find the money and present options to the borrower. A mortgage broker's job is to educate a borrower and to offer the borrower options that will best fit the borrower's situation. There are hundreds of loan programs out there. A mortgage broker's job is to study those programs and as an educated professional help navigate the borrower through the always confusing and sometimes frustrating loan process. A mortgage broker's only job is to provide matchmaking services between the borrower and the hundreds of lenders in the marketplace. There is literally a smorgasbord of loan programs out there, and it is the mortgage broker's job to match the borrower to the right loan program. A mortgage broker is a specialist who spends all of their time concentrating on mortgage loans. In contrast, loan officers at big banks often don't have just one job. They work on mortgage loans, car loans, consumer loans, checking accounts and who knows what else. Another important point is that mortgage brokers don't get paid unless your loan closes. Loan officers are many time salaried, and they get their paycheck regardless of whether your loan application gets approved. A mortgage broker has a strong motivation to do everything he or she can to get the lender to approve your loan. And because mortgage banks loan their own money, they have a limited number of programs to offer. Even still, a particular direct lender might have a fabulous rate on just the type of loan that you are looking for at just the time you call. In this case going with a direct lender would be a good deal. The way things work is that lenders analyze their portfolio of loans. When they are looking to add certain types of loans to their portfolio they lower their rates in order to attract the attention of borrowers. When they have had their fill, they turn right around and increase their rates on that same loan. For the borrower, it's all a matter of being at the right place at the right time. On the other hand, a mortgage broker has access to dozens or possibly hundreds of lenders. When a certain lender raises their rates, the mortgage broker looks elsewhere. Does this mean that 35% of Americans who work directly with mortgage bankers are getting a raw deal? Of course not. There are well-educated mortgage bankers out there who have great rates. There are also loan officers who do nothing but specialize in mortgages. One of the best things about using a mortgage banker is that they can often get the loan through more quickly than a mortgage broker because their bank is making the loan directly. If you're in a huge rush to close, you might want to use a mortgage banker. A lot of borrowers also feel more comfortable getting a loan from a place that "looks like a bank." The primary benefit of going with a mortgage broker is that-through scanning the market-the broker knows each lender's specialty. If you have not-so-perfect credit, a mortgage banker might reject your application, leaving you to start again from scratch with another lender. A mortgage broker, on the other hand, will simply take your application to another lender and work tirelessly to find a lender who wants your business. The market is made up of lots and lots of "niches." There is no one lender who offers loans in every niche. For example, a lot of lenders won't touch a borrower who has poor credit. Other lenders frown on self-employed borrowers who have trouble documenting their income. Still other lenders snub their nose at borrowers who have a lot of credit card debt. Do you have a solid gold credit score? If you're an A+ credit borrower, there are niche lenders for you too. The list goes on and on. Everyone's situation is unique. Fortunately, there are niche lenders for every unique situation, and mortgage brokers can find them. The reality is that borrowers get turned down from mortgage bankers all the time and turn to mortgage brokers who have access to more flexible loan programs. One big disadvantage of using a mortgage banker is that they turn down a lot of borrowers. In fact, they often turn down well-qualified borrowers who walk away in a state of shock. With a mortgage banker, if they aren't looking for your specific type of business, then you're just not going to get a loan from that institution. The problem is that you have to start the entire loan application process over from scratch. The application itself has 10 separate sections, and that doesn't include gathering together all of your financial documents and personal information. You have to go through this process all over again if you get turned down by a mortgage banker because he doesn't have access to other lenders. On the other hand, a mortgage broker will just take your same application and submit it to a different lender without missing a beat. If you do indeed get turned down by a mortgage banker, you will have to turn to yet another mortgage banker or a mortgage broker. That person will have to pull your credit again because you will be starting from scratch. Pulling your credit unnecessarily can have a negative impact on your credit score. In contrast, a mortgage broker will only pull your credit once regardless of how many times your application has to be submitted to different lenders. Remember that mortgage brokers get access to money at wholesale rates. Lenders are willing to offer wholesale rates to mortgage brokers because the mortgage brokers do work that the lenders would otherwise have to do themselves. If a lender offers loans directly to consumers and to mortgage brokers, the mortgage broker will always receive a much better rate than the one that you could get by going to the lender directly. This is the very same reason why General Motors doesn't sell cars directly to the public. They sell cars through car dealerships. If they did sell cars directly to you and me, they would have to offer those cars at a price higher than what you would pay at a dealer; otherwise they would drive their dealers out of business. It's the same in the mortgage business. The mortgage brokers get the discounted rates whereas Joe Public gets the retail rate, even though both rates are coming from the exact same lender. A good mortgage broker is also in this for the long haul. I want to help you obtain financing for this house, but I also want you to come back in a few years when you're ready to buy a new house. Mortgage brokers like me are oftentimes self-employed. I'll be here today, tomorrow, and I'll be here in three years when you're ready to refinance or buy a different house. In contrast, mortgage bankers are usually employees or full-commissioned independent contractors. The mortgage banker who does your loan may not even work for that company when the time comes for you to refinance or make another home purchase. As you can see, a good mortgage broker has a vested interest in making sure that the whole financing process goes smoothly without any hitches. My personal goal is to hold your hand through this complicated and confusing process so that you will be compelled to tell your co-workers, your neighbor, your hairstylist, "Hey, you've got to call my mortgage broker. He's great." As you can tell, I never speak in mortgagese. I use plain language that anyone can understand to explain the very confusing process of getting money to buy a house. Essentially, the mortgage broker and the mortgage banker do basically the same thing- both check your credit and work history, order appraisals and arrange for title searches and so on and so forth-but, once all of this information is compiled, the mortgage banker offers you a mortgage based on one single rate sheet whereas your mortgage broker scours the entire marketplace to match you and your unique personal and financial situation to the lender who most wants your business. To wrap things up with a simple analogy, imagine that you want to take a cruise. You call up Royal Duchess Cruise Lines and talk to a company representative. Of course, that person only sells Royal Duchess Cruises. Will you be happy going on one of their cruises? Probably. Will it be the best cruise available on the market at the best price? Maybe so, maybe not. Your other option is to pick up the phone and call a travel agent. Travel agents get discounted rates on cruises that the cruise lines don't offer to the general public. They also many times get better pricing than you can find on the Internet. That's because cruise lines are actively courting them. Travel agents do all the hard work for the cruise lines. They guide the client through the complicated booking process, fit the personality to the cruise, and take the burden of research off the client's shoulders. Travel agents bring bookings to cruise lines, and in return, cruise lines many times offer them the best rates, even better than Internet rates. It works the same in the mortgage business. Mortgage brokers do all the hard work on behalf of lenders, so naturally the lenders offer them discounted rates. It's easy to see why 65% of Americans choose mortgage brokers when they go looking for the money to buy that dream home.