Banks or morgatge companies?

Question

Which one is better to go through? Which usually has lower interest rates and programs for first-time home buyers?

I don't even know where to start! But I want to stop renting!

Answer 1

Broker can shop for the best ---Bank has few programs and 1 set of rates

Answer 2

I worked at a bank from 2002-2007 and I just went to work at a mortgage company.  The mortgage company has better rates, the process is faster and it has the same first time homebuyer programs as the bank.  The only reason I would go to a bank now is if I wanted a construction loan, and only then if it was for an oddball property or something wasn't normal with the loan.  

Just so you know, there are three types of ways to get a mortgage.  

Mortgage Broker:  These are people that arrange the loan and find a lender.  They then send the loan out to a lender for approval and funding.  These are the people that usually make the news.  This is because they have no liability on the loan since they don't approve it or fund it, unless it can be proven that they did something fraudulent.  Not all brokers are bad, but most of the bad people are brokers.  

Mortgage Lender (aka Mortgage Banker):  These are companies that arrange a loan, approve it, and fund it.  A few months after the loan has been in place, they will sell the loan to a large company that takes care of selling the loan to Fannie Mae or Freddie Mac, or something similar.  Since they sell the loan, they now have their money back to loan out again.  These types of companies are generally more cautious about their loans because they are liable for the loan if it goes bad.  Many of these companies have the first time homebuyer loans that banks do.  These companies typically don't have as much overhead as a bank, so they can offer the same loans at a better price.  I work at one of these companies right now.  I tell my customers to check the rate of their loan on Bank of America's website and I will beat it by .25%.      

Banks:  Banks can operate the same way as a mortgage banker, and they usually do.  However, a bank has the option of keeping the loan instead of selling it.  In a more robust real estate market, they would be inclined to keep riskier loans than what Fannie Mae and Freddie Mac would accept.  However, in this market, most banks are more cautious and will only accept superb loans to keep.  

The best place for you to start is by going to a homeownership counseling course.  You can find one for free somewhere.  Check www.hud.gov for a list.  They may try to sell you on a mortgage while you are there, but be prepared to say no and shop around.  When you are comparing rates from different lenders, make sure you get the quotes at the same time and on the same day.  Rates change every day and sometimes 2-3 times during one day.  

You might also try your local government for resources.  For instance, where I am in Maryland, the state has a website to help people (www.morehouse4less.com) and the city has one too (www.livebaltimore.com).  I would imagine that other places have similar sites.  

Good luck.

JP

Answer 3

Mortgage companies are actually banks.  It's all over the place regarding interest rates.  Changes day to day.  I'd start either where you bank, or with a mortgage broker.  Advantage to a broker is they work with lots of banks to find the best program to fit with your needs where a specific bank might be limited to certian types of loans.  You can get quotes from several different places and they should give you a sheet listing all the estimated closing costs, etc to compare.

Another suggestion would be to get some referrals from other friends who know brokers or lenders.  Often working with a competent person far outweighs the very best rate.  Good luck to you!

Answer 4

Many banks are mortgage companies.  Most will also broker out loans for which they don't have an in-house program.  

Don't ever let anyone tell you that most banks don't broker loans, because they do.

Go to 2 banks and 2 brokers.  Using the very same loan and application info, ask each of them to give you a Good Faith Estimate and a Truth In Lending statement.  Let all of them know that you are shopping, and that you will show all of the paperwork to all of the lenders you are shopping.

Some will back out right there.  That's OK.  They're afraid of competition.  Replace them with someone who isn't.

Make sure, for credit reporting reasons, that all of your credit is pulled within a 14 day window.  That way, all of these lenders pulling your credit won't have a negative impact on that credit.  Stay inside the 14 day window for pulling your credit report.

Compare your total monthly payment at the bottom of the Good Faith Estimate.  Also compare the APR at the top left of the Truth In Lending.

Go with the one that suits you best, or don't go with any of them.  It's your choice.

Shop, shop, shop, and let them know that you are shopping.  Also, ask each lender this question:  "Is there any number that is likely to appear on this Good Faith Estimate at settlement that does not appear on the copy that you just gave me?"

You'll ask the question above because some lenders, in the frenzy to get your loan, will leave costs off of your Good Faith Estimate to make it look like they cost less than all their competitors, but then on the day of settlement, all of the costs that should have been there all along magically appear, leaving you to come up with more money than was indicated to you originally.  

Be very careful about this, as it's a common practice in the lending industry.  It's illegal to do this, but enforecement is lax, so some loan officers do it anyway.

Answer 5

You will do fine.  A mortgage banker loans you their own money.  They have the money sitting right there ready to loan you.   A mortgage broker loans you someone else's money. THey have no money of their own sitting there waiting for you.  

You can't make a huge mistake.  THousands of houses are sold every day and everyone lives thru it.   I think you will have fun.