When you have special financing needs, a mortgage broker may be your lifeline to the loan that you need
By: Phoenix Lee/
A mortgage broker is an intermediary who can deal with a number of different lenders to obtain your loan. They have the ability to make inquiries to those lenders on your behalf in order to obtain a loan product that best fits your needs. Mortgage brokers also have the ability to work with “wholesale” lenders. Wholesale lenders will only accept applications from a mortgage broker, not directly from a borrower.
An experienced broker may also be able to find a lender for you if you have special financing needs or if you can’t find a loan by dealing directly with a lender.
Typically, a mortgage broker earns their fees based on the loan amount. They usually receive compensation from the lender as a “yield spread premium” for placing the loan with that lender. This means that the service a mortgage broker renders you to fix special financing needs is absolutely free.
It is important to keep in mind that although a broker is acting on your behalf, they are not your agent. The terms you are offered may not necessarily be the best terms that may available to you. This is why it’s very important for you to do your homework, compare rates, loan products and only work with trusted mortgage brokers to ensure that you are getting the best deal in finding a solution for your special financing needs.
When you have special financing needs, you have to understand and choose the type of mortgage that best fits your needs
Make sure you completely understand the type of mortgage you are applying for. Know whether the rate will be fixed or adjustable. In a fixed rate mortgage, the principal and interest portion of your payment is guaranteed to remain the same for the life of the loan. Keep in mind, however, that any increase in taxes or homeowners insurance will cause your monthly payment to increase if those items are escrowed and included as part of your mortgage payment.
An adjustable rate mortgage (“ARM”) is any mortgage where the interest rate can change. Typically, the rate will be fixed for a certain period of time and will then adjust periodically. A common type of ARM is a three year ARM. For this type of product, the rate will remain fixed for three years and will then adjust annually thereafter. This is just one example of the many types of adjustable rate mortgages that are available.
Typically, if you have special financing needs, you will need to provide the lender or broker with certain financial and employment information and documentation during the application process. Typically, you will need to provide information about your income, employment, assets and liabilities. To support this information you will likely have to provide pay slips, bank statements, tax returns, investment reports, proof of marital status, and any other documentation to support your information. If you have all of this information available when you submit your application, the process will move ahead much quicker.
Most lenders offer a rate lock option. If you’re working with a broker, they can facilitate the rate lock with the lender. If you don’t have a rate lock in writing, your rate is not locked. This means that the rate is “floating” and can change until you close the loan. If you want to lock your rate, ask your loan originator to do so and then get it in writing. The rate lock agreement should state the interest rate that is locked and the period of time for which the rate is locked.
Do not accept any verbal assurance that your rate is locked and do not accept any excuse for not getting it in writing. Without a written rate lock, you have little recourse if your rate is different when you arrive at the closing. In a rising interest rate environment, the change in rate between the time you submitted your application and the time you arrive at your closing can be substantial.
Loans with the best terms are generally offered to individuals with excellent credit who represent the least risk to a lender. If you have had credit problems in the past you may not qualify for the best loan rates. If you’re told you do not qualify for the loan you applied for because of your special financing needs, and you’re given a counteroffer, be VERY CAREFUL in these situations.
A counteroffer could mean a slight change in the loan terms or it could change the terms substantially. Be sure you completely understand the terms of the counteroffer. The new loan will likely differ from the original loan by a change in one or more of the following:
- a higher interest rate;
- a larger amount of points and fees;
- an adjustable rate provision; and
- a prepayment penalty provision.
If the terms of a counteroffer are not acceptable to you or the loan no longer makes financial sense, you should refuse the counteroffer, ask for a denial of the original loan you applied for and walk away from the transaction.
After you’re approved for a mortgage, a loan closing will be scheduled. This is the final step to owning your new home. But the loan for your special financing needs is not really closed until you sign on the dotted lines of the agreement with the lender.