Regina tweets: Do I really need a mortgage broker for purchasing my first home?
Several years ago I might have replied with a resounding “yes!” but shifts in the mortgage marketplace have made working with a broker, in some ways, less advantageous.
First, some background: Mortgage brokers act as intermediaries between buyers and banks. They work with numerous lenders (the “wholesale market”) to help prospective borrowers arrange financing. Their job is to find you the best loan and assist you through closing. An experienced and efficient broker can potentially save you time, hassle and, most importantly, money. In exchange, they charge fees, which can run between $600 and $900, according to Frank Donnelly, a certified financial planner and chairman of the Mortgage Bankers Association of Metro Washington. “[Fees] are higher than they have been in the past because there are so many new regulations that banks and brokers have to pay attention to,” he says.
But since 2009 major lenders, including Chase to Citibank, Bank of America and Wells Fargo, have departed from the wholesale market, which means mortgage brokers no longer have access to loans from many large financial institutions. “At one time, brokers controlled maybe 40% of the market and, the last I saw, it’s under 5%,” says Donnelly.
So for consumers shopping around for the absolute best loan, working with a broker means fewer choices than before. “An applicant who goes through a mortgage broker for their financing may not have a full view of all available options in the marketplace,” says Brad Malow, founder of BuyingNYC.com.
Case in point: When refinancing my home last year with the help of a broker, I discovered I wasn’t able to refinance with my existing bank, Citi, because it decided – midway through my application process – that it was exiting the wholesale channel. I had to start all over and search for a new bank, which set me back a few months. Citi had initially offered us great terms and, because we had worked with them in the past, the paperwork would have been more streamlined. In the end, I refinanced with a small, community bank, which offered just as competitive a rate, but required more time and paperwork to get us to closing. I’m also not as happy with this bank’s customer service. The website is wonky and their hotline only operates during business hours. In short, it wouldn’t have been my first-choice bank. Knowing what I know now, I might have just called up Citi directly and asked to refi – without help from a broker.
I wouldn’t make a blanket statement that working with a broker is unnecessary. Brokers can be helpful – holding your hand through an arduous process. But if you prefer to have a loan from a major lender, you may have to work independently.
My recommendation is to begin rate shopping with your existing bank. If you’ve had a good relationship there and have multiple accounts (savings, checking, credit), the bank may find it in its best interest to continue serving your financial needs and offer you a very competitive rate. But don’t stop there. Do some additional homework by calling up other lenders and compare rates on sites like Bankrate.com and Zillow.com.
Noemi on Facebook asks: I'm about to go to college and I was wondering if you knew anything about getting an apartment in the city (Chicago) or anything like that? I know I'm going to have some trouble paying for tuition and expenses.
Sounds like campus housing isn’t an option? That may be the cheapest route, since you don’t have to worry about paying additional costs for utilities, basic furniture and security. But if you have no choice but to live off-campus, here are some ways to save on rent, especially in a pricey city like Chicago.
Call campus housing. While you might not be able to score housing on campus, reps in that office may be able to direct you to a university-run website that lists housing options off campus. These listings are usually more affordable than what you’d find on Craigslist. When I was a graduate student in New York City, my university ran a site where neighboring landlords – targeting students and roommates – listed their vacancies. I found an apartment share in a rent-controlled building for only $550 a month including utilities. Score! (I had to live with a married couple but still!)
Gather a group. While you sacrifice some privacy, shacking up with multiple roommates slashes your housing costs enormously. During my senior year of college I shared a house with five roommates. Rent was less than $350 a month including utilities (this was in rural Pennsylvania, admittedly). But had I lived solo or with just one roommate, I would’ve paid at least 25% more. In Chicago, sharing a two-bedroom apartment in a decent neighborhood could be $650-$750 including utilities, according to Jeff Baird, editor of Lakeshore Analytics, a company that provides data on Chicago real estate. You could probably knock that down to $500 or less if you gather a bigger group. This site also provides data on the average cost of Chicago apartments based on number of bedrooms.
Go with furnished. Allison Beacham, a senior at Miami University in Ohio and a college blogger, says it’s best to narrow your options to furnished apartments – a tip she discovered the hard way. “There is nothing more stressful than trying to haul a couch up a dim, dark stairwell, or trying to buy used furniture from a college senior the semester before, and then finding a place to store it,” she says. “Renting a furnished apartment is a good way to cut down on stress and move-in time,” not to mention costs, she says.
Budget for a full year. More than one-quarter of your budget usually goes toward room and board, according to DegreeSearch.org. And while the academic year typically ends in the summer, your lease may run for a full 12 months. Make sure you plan accordingly.
Negotiate. Never sign a lease without asking for concessions. “If you’re renting a house, chances are it’s been around forever, and missing certain amenities,” says Beacham, so ask for a dishwasher or central air conditioning to be put in.
Got a question for Farnoosh? You can reach her on Twitter @Farnoosh or email her at email@example.com.