Selecting a Certified Loan Provider
July 5, 2007, Reviewed November 7, 2008
Congratulations, you have already taken step one toward a satisfactory borrowing experience. You did that when you decided to select your own loan provider rather than allow a loan provider to select you. By not responding to solicitations, you sharply reduce the chances of being scammed.
Step two is to decide the type of loan provider you want to deal with. If you want to develop your own shopping strategy, you can skip the rest of this page and go to How to Shop For a Mortgage. That article will show you how to avoid the booby traps that await you at every step.
The alternative is to take advantage of the work I have done and select a loan provider I have certified. There aren’t that many, but you need only one.
Upfront Mortgage Brokers (UMBs) will shop the market for you and provide professional counsel on your mortgage options. Their fee to you is set upfront, and if you get it in writing, it is guaranteed by me. See Commitment of an Upfront Mortgage Broker. Recommended for those who want the maximum assistance from a trustworthy source, available to all borrowers
Upfront Mortgage Lenders (UMLs) allow you to shop mortgage prices effectively on-line, provided that the site’s on-line system prices all the features of your transaction. See Introducing Upfront Mortgage Lenders. Recommended for those who want to price shop on-line for the best deal, but those with poor credit or atypical transactions are priced off-line.
Fixed Markup UML (FMU UML) provides the same features as other UMLs but also discloses its markup, which remains unchanged if the loan must be priced offline. The markup (comparable to the UMB’s fee) is guaranteed by me. Recommended for those who want to select their mortgage on-line, while avoiding the risks of possible off-line pricing.
The table below provides additional guidance on the type of certified loan provider that makes the most sense for you.
Borrowers should view UMBs as providers of professional services for which they are paid a fee. That fee is the only price brokers control, and it is the only price that borrowers using brokers should shop.
Shopping rates and points with UMBs is a waste of their time and yours. The market is so volatile that prices can change once or more before the day is over, and they will always be reset the following morning. The only effective way to price shop is to do it on-line, where you can compare quotes from multiple lenders within minutes of each other. If this is what you want to do, shop UMLs instead of UMBs.
Once retained, the UMB will shop the market for you. Brokers can shop lenders far better than you, among other reasons, because they are in continuing contact with many lenders.
Borrowers should engage UMBs in the same way that they engage other service providers, such as lawyers, architects or house painters: by assessing their ability to do the job effectively, the fee they charge for their services, and their guarantees or other assurances.
Assessing the UMB’s Ability to Help. UMBs should be interviewed about their qualifications and experience in the same way you would interview any other service provider. Engage the broker in a dialogue regarding your problem, and assess the response. Does this broker listen and respond thoughtfully?
You should also ask about the broker’s practice with regard to third party services. This can be a particularly telling indicator of service quality (see below).
Pricing the Broker’s Services. The fee for the broker’s services should be agreed to by both parties, in advance and in writing. The fee may be a dollar amount, a percent of the loan, an hourly charge for the broker's time, or a combination of these. Most brokers, however, charge a percent of the loan amount. If there is a separate processing fee, it should be included in the agreement.
However defined, the UMB's fee will typically be a significant 4-figure dollar amount. You shouldn't let that faze you. For one thing, the UMB is going to pass through to you the wholesale rates received from lenders, which are below the retail rates quoted by lenders. In many if not most cases, this saving will completely cover the UMB's fee.
Bear in mind that a one-point fee is $5,000 on a $500,000 loan but only $500 on a $50,000 loan. Hence, if the UMB's fee is expressed in points, expect it to be higher on smaller loans. You should also expect to pay more if the UMB anticipates that you will be a "tough case" -- for example, you have credit problems that must be cleared up or you can't document your finances.
Paying the Broker Fee Directly Versus Paying It Indirectly: The broker’s fee may be paid at closing by you, by the lender, or by both. If the lender pays the fee, it means that you are paying the lender a higher rate.
While the fee is a negotiated item, determining whether the fee will be paid by you or by the lender should be your decision alone. If you are short of cash and/or don’t expect to have the house very long, you may want to pay a slightly higher interest rate in order to have the lender pay the broker’s fee. If you have a long time horizon and enough cash, pay the broker yourself in order to get the lower rate.
Broker Guarantees: Upfront Mortgage Brokers provide four guarantees to borrowers:
Some UMBs go beyond strict neutrality on third party services, negotiating preferential prices with service providers and/or guaranteeing third party charges. Brokers who do either are very likely to be superior in other dimensions of service as well.
Mortgage Price-Shopping Can Only Be Done Effectively On-Line: If your loan is priced by a UML, it will be easy to find, and to compare to the quotes on other UML sites. In contrast, price quotes in the hard copy media are always out of date, while telephone and email quotes by brokers and loan officers are seldom accurate. Low-balling, the attempt to ensnare customers by quoting low prices the loan provider has no intention of delivering, is pervasive.
In addition, market price volatility - prices are reset every day and sometimes within the day -- is not a problem in shopping UMLs. Their price quotations can be quickly refreshed.
Do Your Homework: Upfront Mortgage Lenders (UMLs) are for intelligent shoppers who have done their homework. Before they start shopping, they should know the kind of mortgage they want, and the market niche in which they fall.
"Kind of mortgage" includes the type (whether fixed-rate, adjustable rate or balloon), term, down payment, required lock period, and the number of points they want to pay or receive from the lender. Read Tutorials on Selecting Mortgage Features.
"Market niche" refers to any deviations from what lenders consider the ideal applicant. The ideal applicant has excellent credit, is a citizen or permanent resident alien, is purchasing or refinancing a single-family detached house as a primary residence, will not take cash out of the transaction if refinancing, will not have a second mortgage at closing, will escrow taxes and insurance, is the sole borrower (or, if one of several, all will occupy the property), has enough cash from own sources to meet down payment requirements and settlement costs, has sufficient income to meet standard maximum ratios of housing expense and total expense to income, and can fully document required income and assets.
Once you know the loan you want and the market niche in which you fall, you can determine very quickly whether or not a UML meets your needs. You merely check the UML’s table of Market Niches Priced on Line.
If your mortgage and niche are priced by the UML, you can easily compare the prices against those of another UML. Make sure all comparisons are as of the same day, since a change in the market can invalidate comparisons made on different days.
The advantages of shopping UMLs assume that shoppers can price their particular deals on the UML sites being compared. But shoppers who deviate from the features that are priced on-line -- for example, they have low FICO scores and cannot document their incomes -- cannot price their loans on-line. The UML will route them to to a loan officer, at which point they face some of the hazards associated with off-line shopping.
But there is one exception. Any shopper who goes to Amerisave through my site is guaranteed the same markup off-line as on-line. The markup is shown and guaranteed by Amerisave and by me.
NOTE: The markup is disclosed and the guarantee, including mine, applies only for the special Amerisave site that is accessed through my site. Amerisave pays me a fee for my role as ombudsman to borrowers who access them through my site.
Selecting the Type of Loan Provider
Congratulations, you have already taken step one toward a satisfactory borrowing experience. You did that when you decided to select your own loan provider rather than allow a loan provider to select you. By not responding to solicitations, you sharply reduce the chances of being scammed.
Step two is to decide the type of loan provider you want to deal with. If you want to develop your own shopping strategy, you can skip the rest of this page and go to How to Shop For a Mortgage. That article will show you how to avoid the booby traps that await you at every step.
The alternative is to take advantage of the work I have done and select a loan provider I have certified. There aren’t that many, but you need only one.
Upfront Mortgage Brokers (UMBs) will shop the market for you and provide professional counsel on your mortgage options. Their fee to you is set upfront, and if you get it in writing, it is guaranteed by me. See Commitment of an Upfront Mortgage Broker. Recommended for those who want the maximum assistance from a trustworthy source, available to all borrowers
Upfront Mortgage Lenders (UMLs) allow you to shop mortgage prices effectively on-line, provided that the site’s on-line system prices all the features of your transaction. See Introducing Upfront Mortgage Lenders. Recommended for those who want to price shop on-line for the best deal, but those with poor credit or atypical transactions are priced off-line.
Fixed Markup UML (FMU UML) provides the same features as other UMLs but also discloses its markup, which remains unchanged if the loan must be priced offline. The markup (comparable to the UMB’s fee) is guaranteed by me. Recommended for those who want to select their mortgage on-line, while avoiding the risks of possible off-line pricing.
The table below provides additional guidance on the type of certified loan provider that makes the most sense for you.
| Type of Certified Loan Provider | |||
| UMB | UML | FMU UML |
|
| You prefer to control the process yourself | X | X | |
| You prefer to entrust responsibility to a trusted agent | X | ||
| You know a lot about mortgages, or have the willingness and capacity to learn what is needed | X | X | |
| You are overwhelmed by the complexity of mortgages, and don’t have the time or desire to educate yourself | X | ||
| You are comfortable with computers | X | X | |
| You are computer-phobic | X | ||
| Your deal is plain-vanilla: full doc, good credit, down payment | X | X | |
| Your deal is problematic: no doc, poor credit, no down payment | X | ||
| You like the freedom of selecting the best price among competing loan providers | X | X | |
| You prefer dealing with one loan provider with a known (and guaranteed) markup | X | X | |
Dealing With a UMB
Borrowers should view UMBs as providers of professional services for which they are paid a fee. That fee is the only price brokers control, and it is the only price that borrowers using brokers should shop.
Shopping rates and points with UMBs is a waste of their time and yours. The market is so volatile that prices can change once or more before the day is over, and they will always be reset the following morning. The only effective way to price shop is to do it on-line, where you can compare quotes from multiple lenders within minutes of each other. If this is what you want to do, shop UMLs instead of UMBs.
Once retained, the UMB will shop the market for you. Brokers can shop lenders far better than you, among other reasons, because they are in continuing contact with many lenders.
Borrowers should engage UMBs in the same way that they engage other service providers, such as lawyers, architects or house painters: by assessing their ability to do the job effectively, the fee they charge for their services, and their guarantees or other assurances.
Assessing the UMB’s Ability to Help. UMBs should be interviewed about their qualifications and experience in the same way you would interview any other service provider. Engage the broker in a dialogue regarding your problem, and assess the response. Does this broker listen and respond thoughtfully?
You should also ask about the broker’s practice with regard to third party services. This can be a particularly telling indicator of service quality (see below).
Pricing the Broker’s Services. The fee for the broker’s services should be agreed to by both parties, in advance and in writing. The fee may be a dollar amount, a percent of the loan, an hourly charge for the broker's time, or a combination of these. Most brokers, however, charge a percent of the loan amount. If there is a separate processing fee, it should be included in the agreement.
However defined, the UMB's fee will typically be a significant 4-figure dollar amount. You shouldn't let that faze you. For one thing, the UMB is going to pass through to you the wholesale rates received from lenders, which are below the retail rates quoted by lenders. In many if not most cases, this saving will completely cover the UMB's fee.
Bear in mind that a one-point fee is $5,000 on a $500,000 loan but only $500 on a $50,000 loan. Hence, if the UMB's fee is expressed in points, expect it to be higher on smaller loans. You should also expect to pay more if the UMB anticipates that you will be a "tough case" -- for example, you have credit problems that must be cleared up or you can't document your finances.
Paying the Broker Fee Directly Versus Paying It Indirectly: The broker’s fee may be paid at closing by you, by the lender, or by both. If the lender pays the fee, it means that you are paying the lender a higher rate.
While the fee is a negotiated item, determining whether the fee will be paid by you or by the lender should be your decision alone. If you are short of cash and/or don’t expect to have the house very long, you may want to pay a slightly higher interest rate in order to have the lender pay the broker’s fee. If you have a long time horizon and enough cash, pay the broker yourself in order to get the lower rate.
Broker Guarantees: Upfront Mortgage Brokers provide four guarantees to borrowers:
*The broker’s total income from the transaction will not exceed the fee
agreed upon with the borrower, as discussed above.
*The broker will provide the borrower with a copy of the rate lock commitment from the lender as soon as it is received. This prevents the broker from substituting her own lock for the lender’s, a practice that puts a few additional dollars in the broker’s pocket but leaves the borrower unprotected against a serious spike in interest rates.
*The fixed-dollar lender charges shown on the Good Faith Estimate, which are usually not part of the lock commitment, will not be changed so long as the transaction is not changed.
*Third party fees will be passed along with no direct or indirect markup by the broker.
*The broker will provide the borrower with a copy of the rate lock commitment from the lender as soon as it is received. This prevents the broker from substituting her own lock for the lender’s, a practice that puts a few additional dollars in the broker’s pocket but leaves the borrower unprotected against a serious spike in interest rates.
*The fixed-dollar lender charges shown on the Good Faith Estimate, which are usually not part of the lock commitment, will not be changed so long as the transaction is not changed.
*Third party fees will be passed along with no direct or indirect markup by the broker.
Some UMBs go beyond strict neutrality on third party services, negotiating preferential prices with service providers and/or guaranteeing third party charges. Brokers who do either are very likely to be superior in other dimensions of service as well.
Shopping UMLs
Mortgage Price-Shopping Can Only Be Done Effectively On-Line: If your loan is priced by a UML, it will be easy to find, and to compare to the quotes on other UML sites. In contrast, price quotes in the hard copy media are always out of date, while telephone and email quotes by brokers and loan officers are seldom accurate. Low-balling, the attempt to ensnare customers by quoting low prices the loan provider has no intention of delivering, is pervasive.
In addition, market price volatility - prices are reset every day and sometimes within the day -- is not a problem in shopping UMLs. Their price quotations can be quickly refreshed.
Do Your Homework: Upfront Mortgage Lenders (UMLs) are for intelligent shoppers who have done their homework. Before they start shopping, they should know the kind of mortgage they want, and the market niche in which they fall.
"Kind of mortgage" includes the type (whether fixed-rate, adjustable rate or balloon), term, down payment, required lock period, and the number of points they want to pay or receive from the lender. Read Tutorials on Selecting Mortgage Features.
"Market niche" refers to any deviations from what lenders consider the ideal applicant. The ideal applicant has excellent credit, is a citizen or permanent resident alien, is purchasing or refinancing a single-family detached house as a primary residence, will not take cash out of the transaction if refinancing, will not have a second mortgage at closing, will escrow taxes and insurance, is the sole borrower (or, if one of several, all will occupy the property), has enough cash from own sources to meet down payment requirements and settlement costs, has sufficient income to meet standard maximum ratios of housing expense and total expense to income, and can fully document required income and assets.
Once you know the loan you want and the market niche in which you fall, you can determine very quickly whether or not a UML meets your needs. You merely check the UML’s table of Market Niches Priced on Line.
If your mortgage and niche are priced by the UML, you can easily compare the prices against those of another UML. Make sure all comparisons are as of the same day, since a change in the market can invalidate comparisons made on different days.
Fixed-Markup UML
The advantages of shopping UMLs assume that shoppers can price their particular deals on the UML sites being compared. But shoppers who deviate from the features that are priced on-line -- for example, they have low FICO scores and cannot document their incomes -- cannot price their loans on-line. The UML will route them to to a loan officer, at which point they face some of the hazards associated with off-line shopping.
But there is one exception. Any shopper who goes to Amerisave through my site is guaranteed the same markup off-line as on-line. The markup is shown and guaranteed by Amerisave and by me.
NOTE: The markup is disclosed and the guarantee, including mine, applies only for the special Amerisave site that is accessed through my site. Amerisave pays me a fee for my role as ombudsman to borrowers who access them through my site.