Author Topic: Mortgage brokers and prequalification  (Read 2811 times)

WootWoot

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Mortgage brokers and prequalification
« on: February 12, 2018, 11:51:02 AM »
DH and I are thinking of buying a home. I've got a friend who is a realtor, and she works closely with a local mortgage broker. I've also read that it's a good idea to get prequalified, so I've been in touch with this broker. I asked him what sort of fees he charged. He replied,
Quote
There is no charge for a preapproval through my company.  My overall fees for the loan will be similar or maybe even less than what you would pay through a bank.  The only fee I collect before closing is for the appraisal – which is usually around $500 or so.  Most lenders do this because the appraiser wants to be paid as they walk in the door of the house.

I'm wondering: what's a Mustachian take on this? $500 seems a wee bit high for an appraisal fee (according to Google). I'm guessing the "fees for the loan" are origination fees?

We are also looking at FHA loans (which the broker also handles).

He'd like to sit down with DH and me to talk about how much we'd feel comfortable paying in a mortgage, etc.

Is prequalification necessary? Is it even a good idea?

I've read that mortgage brokers can save you a lot of legwork. But is this legwork something we could easily do ourselves?

Thanks, all!

frugalfoothills

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Re: Mortgage brokers and prequalification
« Reply #1 on: February 12, 2018, 12:45:49 PM »
I'm sure it might be different in different parts of the country, but where I am (southeast USA) it's pretty difficult to get anyone to take your offer seriously without a prequalification in-hand. Houses are flying off the market around here and no one want's to take a risk on someone who doesn't have that prequalification. If I'm a seller and I can choose between two offers, and one offer has a prequalification from a bank essentially guaranteeing that the buyers will make good on the cash, I'm always choosing that one over someone with no backing from a bank.

I mean, I could technically make an offer on the $500k house a few streets over from me, but it means nothing if a bank won't loan me the money.

As for the fees--I think a home inspection in my area is $350-$450, but I'm not in a HCOL area, either. As far as the rest of closing costs--I negotiated for the sellers to pay closing costs, so I only went out of pocket on a second appraisal, the inspection, and the down payment.

WootWoot

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Re: Mortgage brokers and prequalification
« Reply #2 on: February 12, 2018, 01:12:05 PM »
Thanks for replying!

My area is cheaper than the U.S. average as far as COL goes.

I had forgotten that sometimes, closing costs can be negotiated with the seller. Thank you for pointing that out. So I will definitely go for prequalification, but I'm still not sure I need a broker.


Proud Foot

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Re: Mortgage brokers and prequalification
« Reply #3 on: February 12, 2018, 01:14:34 PM »
Having never gone through this myself I cannot speak from experience. I have heard from many places to get pre-approved rather than pre-qualified as it will save you time in making an offer when you find the house you like. It will also give you more information up front regarding rates, payment, and the maximum loan amount. I do not think you should use the pre-approval amount as your budget when looking either. Just because you can afford and are approved for a $350k mortgage (example) doesn't mean you have to get a house that costs that much.

As far as a broker, my understanding is the process is not different than through a bank. The broker is just independent of a bank and may or may not still service the loan after they sell it.

WootWoot

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Re: Mortgage brokers and prequalification
« Reply #4 on: February 12, 2018, 01:17:33 PM »
We probably do qualify for a bigger loan than I would ever want to take on. We have no consumer debt at all. Certainly I don't want to get in over my head.

rubybeth

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Re: Mortgage brokers and prequalification
« Reply #5 on: February 12, 2018, 01:31:07 PM »
Edited to clarify: you want pre-approval on a mortgage loan, not pre-qualification. Pre-approval looks more in-depth at your finances and what you can really afford than pre-qualification (basically just verifying your credit score). Also, tell them what you hope to spend on a house, don't ask what's the most you can be approved for.

A broker may or may not be necessary. I would suggest getting multiple quotes when you actually have a signed purchase agreement to compare closing costs, interest rates, etc. You definitely need to be pre-approved in order to have your offers taken seriously. You can get multiple pre-approvals, if you like--it will make it easier if you have to make a quick offer and need an approval letter that same day if multiple lenders can make them for you.

For every offer we've made on houses, we've included a specific pre-approval letter from one of our potential lenders saying we are approved for what we are offering--they customize these for each offer. It's best to only show you are pre-approved for the amount you are offering, and not more (and certainly not less!). This goes in with your proposed purchase agreement when you make the offer. We have worked with a mortgage broker for all our pre-approvals but not sure if we will definitely use this person when we actually buy. It depends on the bottom line.
« Last Edit: February 12, 2018, 01:33:50 PM by rubybeth »

Another Reader

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Re: Mortgage brokers and prequalification
« Reply #6 on: February 12, 2018, 01:38:21 PM »
It's a good idea to talk to a number of lenders.  Brokers deal with the "wholesale" side of the bank.  They can shop many different lenders with wholesale arms to get the best rate and terms for your situation.  Large banks, credit unions, and local banks can also originate loans.

Most loans are sold to Fannie Mae or Freddie Mac as soon as they are made.  Brokers do not generally service loans.  If the loan is sold, it will be the buyer's choice who services your loan.

You want a preapproval, where the lender has pulled your credit report to insure you qualify for the loan, before you make an offer.  Shop the loans first, as you want to minimize the credit pulls.  Generally, if several reports for a mortgage are pulled in a 30 day window, the hit to your score is not much different than one pull. 

FHA loans are a rip off.  FHA loans now require you to carry the mortgage insurance for the life of the loan.  There are some 3 and 5 percent down conventional loans available for people with excellent credit.  The interest rate will be slightly higher, but no MI.

In a balanced, LCOL market, negotiating with the seller for closing costs is possible.  Ask your agent and lender what is acceptable in your market.  Appraisals have gotten expensive, because the lender has to go through an appraisal management company to conform.  They select the appraiser and add another layer of cost.

August26th

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Re: Mortgage brokers and prequalification
« Reply #7 on: February 12, 2018, 01:41:49 PM »
I am a lender with 15 years experience, and can maybe shed a bit of light.

The definition of a mortgage broker/banker/lender can really get confusing, but in the end, most of us do the same thing. It’s just a difference of the means to that same end.

The definition of “broker” typically means they have parternships with investors and they do not lend any of their own money. So if you work with Joe from XYZ Brokers, at closing your documents will be in the name of whatever investor he chose (Chase, Wells Fargo, SunTrust, and a HUGE host of others.) Joe’s company has NONE of their own money to lend.... they are just the middle man so to speak.

A banker or direct lender MAY STILL use a variety of mortgage investors, and have the same options as as a broker. The difference is that a banker will “fund” the loan in their own company’s name, instead of the name of whatever company they are brokering to.

There is not necessarily a wrong way to go here... each type has their own pros and cons.

If none of that makes sense.... just know this: find an experienced loan officer that you know, like, and trust, and you should be fine, no matter what kind of company they work for.

A prequalification or preapproval should ALWAYS be free (in my opinion.) Most loan officers work on commission, which means we only get paid once your loan closes and funds. We provide all of the upfront work for free, in expectation of getting paid when all is said and done. If you are being charged for a prequalification/preapproval, I’d suggest you RUN to another loan officer.

Appraisal fees can vary significantly depending on the region you live in. Truly, that range can be from $350 - $900 or so. Some companies charge the upfront appraisal fee, and some don’t. The logic is solid... the appraiser will have to get paid if they have done the work (regardless if you eventually purchase the home or not), so some companies collect the funds upfront in case the deal falls through.

Happy to answer other questions if you have them.

WootWoot

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Re: Mortgage brokers and prequalification
« Reply #8 on: February 12, 2018, 01:55:33 PM »
Thank you for the info. I am still a bit confused, and not sure what the first step is to take. This is because: 1) We don't really know "how much house" we can afford. Currently we're paying an unrealistically low amount of rent and my dream would be to pay that, or not more than a couple hundred dollars more than that, for a mortgage, taxes, etc. We have a low income, which is why I was considering FHA. (Also, they will pay a fair amount of closing costs--that is, of course, assuming the seller won't). 2) We haven't even started looking at places because I don't want to waste ours and the realtor's time looking at places that are out of reach. As I said, I don't quite know where to start.

The whole thing makes me feel like I've got bees in my head. LOL

Edit:  I hope I don't sound stupid.
« Last Edit: February 12, 2018, 02:01:37 PM by WootWoot »

rubybeth

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Re: Mortgage brokers and prequalification
« Reply #9 on: February 12, 2018, 02:06:02 PM »
Thank you for the info. I am still a bit confused, and not sure what the first step is to take. This is because: 1) We don't really know "how much house" we can afford. Currently we're paying an unrealistically low amount of rent and my dream would be to pay that, or not more than a couple hundred dollars more than that, for a mortgage, taxes, etc. We have a low income, which is why I was considering FHA. (Also, they will pay a fair amount of closing costs--that is, of course, assuming the seller won't). 2) We haven't even started looking at places because I don't want to waste ours and the realtor's time looking at places that are out of reach. As I said, I don't quite know where to start.

The whole thing makes me feel like I've got bees in my head. LOL

Edit:  I hope I don't sound stupid.

I would suggest starting with Michael Bluejay's series on "how to buy a house"--I have referred to it many times over the years: https://michaelbluejay.com/house/basics.html

I also really like this mortgage calculator: https://usmortgagecalculator.org/ You can take some example listings from your area and plug in the exact numbers or estimates (taxes, insurance, etc.) to see what your monthly payment would be. Also consider that you will have maintenance costs each year vs. renting and be sure to set aside some funds for these.

To get your feet wet, you could visit some open houses in your area to get a feel for what is available.

Jon Bon

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Re: Mortgage brokers and prequalification
« Reply #10 on: February 12, 2018, 02:11:07 PM »
Thank you for the info. I am still a bit confused, and not sure what the first step is to take. This is because: 1) We don't really know "how much house" we can afford. Currently we're paying an unrealistically low amount of rent and my dream would be to pay that, or not more than a couple hundred dollars more than that, for a mortgage, taxes, etc. We have a low income, which is why I was considering FHA. (Also, they will pay a fair amount of closing costs--that is, of course, assuming the seller won't). 2) We haven't even started looking at places because I don't want to waste ours and the realtor's time looking at places that are out of reach. As I said, I don't quite know where to start.

The whole thing makes me feel like I've got bees in my head. LOL

Edit:  I hope I don't sound stupid.

Pre-approval should take about 5 minutes to accomplish with a lender.  Pre-approval should 100% be free, in my state I would laugh in their face if they tried to charge for pre-approval and go somewhere else.  I also think pre-approval is highly overrated and unnecessary, but hey that's just one persons opinion.

As for the lender collecting a 'fee' its totally not for the appraisal btw. Its just so you have some skin in the game. Your lender is doing a bunch of work for you, and does not want you to be able to walk away with zero penalty. So really its just a little 'loan earnest money'

There are going to be about 100 things on your closing documents of who pays what etc. One of those things is going to be the appraisal and another is going to be the $500 that you paid.  So say the lender collects $500 bucks from you, appraisal costs $300 bucks, that $200 remaining should count towards your down-payment at closing. That is at least been my experience (approx 10 mortgages past 9 years or so).

As for how much house can you afford, that's a whole different thread. Good luck out there!












frugaliknowit

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Re: Mortgage brokers and prequalification
« Reply #11 on: February 12, 2018, 02:21:02 PM »
PreApproval is just a lender looking at your credit and income, making some basic calculations, and coming up with an amount they will lend you SUBJECT TO APPRAISAL (if the property doesn't appraise, no loan...) around current interest rates.  That's all it is.  You should have it in case you want to make an offer on a property.

You do NOT have to use the lender who gives you the preapproval.  When/if the time comes when you go into contract to buy a home, you can then compare a number of lenders.

August26th

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Re: Mortgage brokers and prequalification
« Reply #12 on: February 12, 2018, 02:26:55 PM »
Thank you for the info. I am still a bit confused, and not sure what the first step is to take. This is because: 1) We don't really know "how much house" we can afford. Currently we're paying an unrealistically low amount of rent and my dream would be to pay that, or not more than a couple hundred dollars more than that, for a mortgage, taxes, etc. We have a low income, which is why I was considering FHA. (Also, they will pay a fair amount of closing costs--that is, of course, assuming the seller won't). 2) We haven't even started looking at places because I don't want to waste ours and the realtor's time looking at places that are out of reach. As I said, I don't quite know where to start.

The whole thing makes me feel like I've got bees in my head. LOL

Edit:  I hope I don't sound stupid.


You don’t sound stupid! You sound like a new homebuyer, which is where EVERYONE starts! This is exactly why it’s smart to partner with a mortgage loan officer. Find someone that seems trustworthy, get education, do the prequalification process, and learn. You are not tied to them. You can learn a lot by asking questions of them. Sometimes it’s best to start backwards.... in other words, what do YOU think you can afford for a monthly payment? And if you know that number, and also know how much money you have to put down, then you and the loan officer can work backwards to figure out what that sales price equates to.

WootWoot

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Re: Mortgage brokers and prequalification
« Reply #13 on: February 12, 2018, 03:34:01 PM »
Thank you all very much. Especially for the links, which I will check out now. :)


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Re: Mortgage brokers and prequalification
« Reply #14 on: February 14, 2018, 05:10:17 PM »
It's a good idea to talk to a number of lenders.  Brokers deal with the "wholesale" side of the bank.  They can shop many different lenders with wholesale arms to get the best rate and terms for your situation.  Large banks, credit unions, and local banks can also originate loans.

Most loans are sold to Fannie Mae or Freddie Mac as soon as they are made.  Brokers do not generally service loans.  If the loan is sold, it will be the buyer's choice who services your loan.

You want a preapproval, where the lender has pulled your credit report to insure you qualify for the loan, before you make an offer.  Shop the loans first, as you want to minimize the credit pulls.  Generally, if several reports for a mortgage are pulled in a 30 day window, the hit to your score is not much different than one pull. 

FHA loans are a rip off.  FHA loans now require you to carry the mortgage insurance for the life of the loan.  There are some 3 and 5 percent down conventional loans available for people with excellent credit.  The interest rate will be slightly higher, but no MI.

In a balanced, LCOL market, negotiating with the seller for closing costs is possible.  Ask your agent and lender what is acceptable in your market.  Appraisals have gotten expensive, because the lender has to go through an appraisal management company to conform.  They select the appraiser and add another layer of cost.

FHA loans also have some strict requirements for home inspections.  For example, if you are looking at an older home they will require that all rooms where electrical outlets are near water be changed to GFCI outlets before they will close.  This can make a difference to sellers if the market is hot do to the bother factor. 

clarkfan1979

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Re: Mortgage brokers and prequalification
« Reply #15 on: February 18, 2018, 01:07:19 AM »
Get the preapproval letter from the friends mortgage lender. However before you actually sign the loan, get three different quotes from three different brokers. The rates should be the same, but the fees will be a little different.

I really do not like mortgage brokers. It's a hard business. If you are too honest you probably won't survive. I have bought two houses and done two refinances and I haven't found a broker yet that I would use a second time.
« Last Edit: February 18, 2018, 01:15:50 AM by clarkfan1979 »

WootWoot

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Re: Mortgage brokers and prequalification
« Reply #16 on: February 18, 2018, 02:34:28 PM »
My friend's acquaintance is a broker, not technically a lender. I can imagine it's a hard business. This guy's a one-man band, too.

From what I read on the links posted above, you don't really need a broker unless you don't qualify for a conventional mortgage. I need to think about this a bit more.

Get the preapproval letter from the friends mortgage lender. However before you actually sign the loan, get three different quotes from three different brokers. The rates should be the same, but the fees will be a little different.

I really do not like mortgage brokers. It's a hard business. If you are too honest you probably won't survive. I have bought two houses and done two refinances and I haven't found a broker yet that I would use a second time.