There are basically two channels for mortgage origination, wholesale and retail. Retail refers to banks originating their own mortgages—actually hiring loan officers and putting them on the payroll. These employees then have to be housed in offices, trained, given computers and other equipment, enrolled into benefits plans, and so on. Loan officers are commission-based employees, though some also draw salaries. They require management, support staff, and a human resources department. There will also be marketing costs to acquire customers for these loan officers. Liability for the actions of employees falls to the parent company, which may mean additional exposure to risk. Hiring and training new employees can be costly and take time, meaning that in times of increased mortgage volume it may take a while to staff up. During periods of low volume, it can be costly and difficult to downsize. In other words, retail is not a particularly scalable channel, and it has high overhead. Consequently, retail mortgages require fees and pricing which make the channel profitable. The above issues gave rise to another distribution channel for mortgage products: the wholesale channel. Mortgage brokers maintain their own offices; do their own marketing; and carry their own liability. With almost no overhead cost, the lenders have a ready-made workforce able to bring them as many qualified mortgage customers as they have an appetite for. It is an efficient and competitive marketplace; a lender who wants more volume simply offers lower pricing or expands their product offering. And most importantly, the lender does not have to build all of its retail costs into the pricing of the loan. The wholesale rates accessible by mortgage brokers are low enough for the mortgage broker to build in his own fees (usually through yield-spread premium) and still offer a final interest rate lower than the bank’s own retail arm.

Transparency and Personal Attention

In all mortgage origination channels (and everywhere in life) there are people operating with a wide range of skill and experience, with all sorts of philosophies and specific focuses. Not all mortgage brokers do a better job than their loan officer counterparts at the bank (though we do). It is true, however, that under current laws all mortgage brokers are more transparent with their fees and total revenue on each loan than banks are. This is a level of transparency which is unheard of in any other industry. Banks are not required to disclose their profit when originating a retail loan for a customer, and even the loan officers themselves don’t know.

In the highly-competitive arena of mortgage lending, it seems that radio and print ads are in a constant competition to one-up each other, and this can lead to some deceptive and misleading claims. Often even a mortgage professional has to do some real digging to find “the catch” in certain offers, and it can be frustrating. There are laws against deceptive advertising, but enforcement is all but impossible given the volume of material to examine. Just bear in mind the old adage, “if it seems too good to be true, it probably is.”

At Prestige Home Mortgage, LLC, we take enormous care to give you the whole picture up front and throughout the process. Good faith estimates are required of all lenders, but the precision of those estimates is basically at the discretion of the person preparing it. We work with closing agents, insurance agents, the County Property Appraisers, and lenders to provide information as complete and accurate as possible, right from the beginning. Consequently, if the fees disclosed on our good faith estimate seem high, ask us—most likely you are comparing it to one that is incomplete.

One of the biggest fears of any first-time home buyer is that there will be surprise costs—either at the closing or afterward. The only way to avoid surprises is through experience and by being thorough, and that’s how we operate. We don’t overpromise up front, and hope to smooth it out at the closing table.

This section is intended to introduce you to everyone you will encounter during the process of buying a home. It is not a complete list of everyone who will work on your file behind the scenes, such as underwriters or processors, but merely the people you will actually meet or speak to:

Mortgage broker: This is your main point of contact. In many cases, the mortgage broker is involved with you even before you have located a property to buy. We answer your questions, explaining what kinds of loans you can qualify for now, and sometimes the steps you can take to become better qualified prior to applying. The mortgage broker will review your credit report with you in detail, gather the documentation that will be required to approve your loan, and review with you your options, the costs, and the process. We work with the lender and all other parties to ensure a smooth, on-time loan closing.

Buyer’s agent: If you are using a REALTOR®, he or she will be your closest contact after your mortgage broker. If you aren’t using one, we feel you should be. Unless you are buying your home directly from a builder, it is important to have a locally licensed REALTOR® as an advocate. First, these professionals have access to the Multiple Listing Service (MLS), which contains information about most properties listed for sale. They can provide you with a detailed list of properties meeting your description and price range (with pictures), and then take you inside those homes that interest you. They can offer you market-specific guidance, and help you with contract language and negotiating a good price. Finally, in most cases their commission is already worked into the price of a given property and paid directly from the seller’s proceeds at no cost to you. If you aren’t represented by a REALTOR® of your own, the seller’s agent may end up representing you as well by default. You would generally be better served by a “single agency relationship”, in which the agent’s loyalty is to you alone.

Appraiser: This licensed professional will examine the property in question, take pictures, and determine if there is anything structurally wrong with the property which would need to be remedied prior to the sale. He will then examine local market data and investigate recent sales of similar properties (“comparables” or “comps”) to determine his estimate of the home’s true market value. The appraiser works for the lender, who wishes to ensure that the loan they are making is secured by property of an appropriate value. The appraiser is an independent contractor who gets paid for the work he has done regardless of whether the loan ultimately closes, and for this reason the appraiser is typically paid up front by the buyer. If an appraisal reveals structural problems or cannot justify the agreed-upon sales price, the buyer will in most cases just locate a new property. A copy of the completed appraisal is given to the buyer to keep. Locally, a complete appraisal currently costs about $350-$400. This is usually going to be the only out-of-pocket charge to our customers throughout the loan process, other than the earnest money deposit agreed to by the buyer and seller in the sales contract.

Home inspector: As opposed to an appraiser, who works for the benefit of the lender, a home inspector is hired by the buyer directly. This is an optional service which is not required by the lender, and is only performed to satisfy the buyer that they know everything about the property going in. The fee charged by a home inspector will vary, but is usually around $300-$400 locally. Hiring a home inspector is a good precaution and worth the investment. We can recommend a good home inspector if you like, but it is at your discretion whether to hire one. Insurance agent: All lenders will require that the home being purchased is covered by a hazard insurance policy, prepaid for one year, in the amount of the “replacement cost” of the home. The replacement cost is determined by the appraisal, and therefore the hazard insurance policy is usually one of the last conditions we clear prior to closing. The cost of paying the first year’s premium on the insurance policy is usually included in the loan itself, along with the other closing costs, and does not have to be paid out of pocket by the buyer. Beginning with the first mortgage payment, hazard insurance escrows will be collected by the lender every month so that the next time payment on the policy comes due (in 12 months), the lender will have collected a full annual premium again. The lender will be responsible for paying the insurance premium each year using your escrowed funds. If the home being purchased is determined to be in a flood zone, flood insurance will also be required. The insurance agent will need the buyer to sign an application, and may ask additional questions depending on the insurance company being used. Most insurance agents, like mortgage brokers, are independent agents able to write policies through many insurance providers and they will automatically shop around for you.

Title agent: In many States, the title agent doubles as the closing agent and performs many duties on each file. First, they search the title of the property being purchased for liens or clouds, such as unpaid property tax or assessments. They also check the public records of the buyers to ensure that they are not encumbered by liens which could affect title, such as unpaid income tax. Anything that comes up in the title search must be addressed prior to closing the loan. In many cases the title agent will also hire a surveyor, at the request of the lender, to ensure that the property improvements do not encroach upon neighboring properties or easements (such as utilities). As the closing draws near, the lender will send their package and closing instructions to the title agent, who will then go through the paperwork with all parties and obtain notarized signatures. The title agent receives the wire of funds, distributes all proceeds, and finally records the mortgage documents in the public record. A  final settlement statement will list more than a dozen line items in the areas of title charges and government recording and transfer charges, so if you are looking at a good faith estimate without that level of detail you may not be seeing the whole story. Note: in some states, such as New York, a real estate attorney is required to do much of this work.

Closer: While the closer is usually the same person as the title agent, in some cases a third party closer will be used. Some title companies are small and need to contract out this work—other times a closing will be held in an unusual location, at an unusual time, or by mail (when one party is out of the area), and the title agent is unable to attend. Any official notary public can execute the loan documents if necessary.