Is It Important To Compare Mortgage Rates
Comparing mortgage rates is one way to save money on your home loan. If you accept the first offer you see, you may regret it later. With so much competition in the lending industry today, you can usually find a lower rate if you do a little price comparison.
The easiest way to find low rates is to shop around. This is really easy in todays internet-driven world. There are loan calculators, comparison tools, lender portals, and more all designed to help you line up offers to see which is giving you the right deal.
Cons Of Using A Mortgage Broker
1. Commission Disincentive: Since lenders pay brokers commission fees after closing a deal, there is a potential conflict of interest. For example, if a lender pays more based on volume or other terms, a broker may tend to recommend them more often, and not exhaust the entire universe of lending options available.
This is only an issue if the lender recommended doesnt have the best rate for your circumstances. To avoid this problem, use more than one mortgage broker and compare their offers.
2. Terms and Conditions: Apart from rates, mortgages also come with terms and conditions such as prepayment terms, porting rules, payment deferral options, penalty clauses, etc. While the mortgage broker is expected to highlight these differences and explain them to you, you cant bank on them.
The lowest rate may come with unfavourable conditions that make them more expensive in the long run. For instance, prepayment or lump-sum payments may be severely limited. This means you cannot afford to just stay on the sidelines and take whatever is offered to you. You should ask questions.
3. Access to non-broker Lenders: Some of the big banks run their own show with in-house staff . If they are not paying mortgage brokers a commission or finders fee, they have no incentive to check with these lenders or to recommend them. This essentially reduces the pool of lenders being consulted for the best rates.
Less Stringent Qualification Criteria
You’re not just another potential debtor to a credit union you’re a valued member and they’ll go the extra mile to earn your business.
If you have less than perfect credit or a unique employment situation, your options may be severely limited at a big bank.
Reasoning: loan products are in high-demand, and most major financial institutions use cutting-edge technology to weed out riskier applicants that fail to meet the minimum criteria.
But in some instances, big banks will bend the rules only after you’ve patronized their services for an extended period of time.
But it isn’t necessary to court the credit union for months or even years before they consider your application.
Most will have flexible debt products available that are tailored to meet the needs of consumers with poor credit or who are self-employed.
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What Are Credit Unions
Banks and credit unions both provide financial services and products, but they operate in very different ways. While banks are primarily aiming to maximize their profit, credit unions have a mission to support their members and the local community. Youll understand how this plays out when we examine their offerings in more detail.
Although we dont tend to hear as much about credit unions as we do about banks , more than 122 million people in the U.S. are credit union members. Its fair to say that theyre a big deal. But are they right for you?
Is Your Money Safer In A Credit Union Or Bank
Cybersecurity is a hot topic these days, and rightfully so. You cant walk through a crowded room without meeting someone whos had their bank account hacked. Cybercrime has resulted in $1.5 trillion stolen from hard-working, everyday people.1 Thats equal to the GDP of Russia. Makes your head spinand your stomach turn with anxiety.
No worries, though. Your money is equally safe in both credit unions and banks. The federal government requires financial institutions to pay back money stolen from your account if hackers breach their website.
If your PIN or debit card is stolen and somebody takes out money or spends money from your account, there are some guidelines about how much money you get back. That amount is based on how soon you report the theft. The sooner, the better, of course. This goes for both banks and credit unions.
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Why Refinance Your Mortgage At A Credit Union Instead Of A Bank
There are several advantages to mortgage refinancing with a credit union instead of your local bank. High interest rates, restrictions, and poor customer service are often associated with banks, which are often more focused on investors than customers. Small, local credit unions, like LUSO Federal Credit Union, can help people who live or work in Hampden County with financial imperfections get their mortgages refinanced with lower interest rates, leniency, and even set up practices to build their credit scores. Here are a few ways credit unions are the better option to refinance your mortgage.
How To Apply For A Mortgage
Whenever a lender provides a mortgage loan to a borrower, they take on a certain amount of risk because there is never a 100% guarantee that the borrower will have the ability to pay back the entire loan. The best protection for the lender is the property itself, which the lender can seize or foreclose if the borrower defaults on payments. The other way lenders protect themselves is by running a background check on the borrower.
When assessing a borrower, the lender is likely to take into account credit score, income, expenses, and the size of the down payment. In order to run an assessment, your lender is likely to ask for the following:
- Social security number
- W-2s or I-9 from the past two years
- Proof of other sources of income
- Federal tax returns
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May Not Service Your Mortgage After It Closes
In many cases credit unions sell your mortgage to a third party after your loan closes which means that the credit union may not service your mortgage. For example, you may make your monthly mortgage payment to your mortgage servicer instead of the credit union that funded your loan. Additionally, if you have a question about your loan terms, monthly payment or mortgage balance after your loan closes you contact your mortgage servicer and not the credit union. Credit unions still serve as a helpful resource after your mortgage closes, especially if you are considering refinancing, but most borrowers interact primarily with their mortgage servicer which may diminish the value of your relationship with the credit union.
Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our mortgage reporters and editors focus on the points consumers care about most the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more so you can feel confident when you make decisions as a homebuyer and a homeowner.
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Approval Based On Income
Since credit unions are member-focused, theyre often more forgiving with approval based on income. Youll need to show your pay stubs, bank statements and tax returns to prove your gross income, which is then measured against your monthly debt. If your debt-to-income ratio is within the allotted percent, youre likely to be approved for the loan. DTI is a comparison of your monthly debt payments compared to your monthly income. The calculation is simple: Its total monthly debt divided by total monthly income.
Many credit unions are created for and founded by people in a certain industry. Teachers are a well-known example, and with that comes the knowledge of how members income works. Banks rarely dig in so deep when looking at the income of their applicants and focus strictly on the numbers and hard data applicants present.
Why Get A Mortgage With A Credit Union
Canada’s credit unions have a tradition of customer service built on community, with the understanding that we all do better when we work together. Because credit unions are owned by Members, there is an incentive to offer the best possible rates and fees.
Meridian is Ontarios largest credit union, helping over 350,000 Members achieve their financial goals. It offers everything its Members need to coordinate every aspect of their financial life while taking advantage of rates and offers that are often better than those offered by big banks.
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Types Of Mortgage Lenders
Whether youre a firsttime home buyer or a homeowner looking to refinance, your goal is probably to find the best rate and lowest fees on your new loan.
To find a great deal, you have to shop around with a few different lenders and compare offers.
You also have to choose the type of mortgage company you want to work with. There are two main options.
- Direct lenders Financial institutions that originate, process, and fund the loans themselves. In other words, the company you work with is the one lending the money. Direct lenders include big banks , credit unions, and mortgage companies that specialize in home loans
- Mortgagebrokers A broker is a middleman that helps match you with the best lender for your needs. Brokers work with multiple wholesale mortgage companies, so they can act as a single point person to help you compare multiple loan options
Does it matter whether you choose a mortgage broker or a bank? It might, depending on your needs.
For example, you may be able to save time and money with a bank if your loan file is straightforward. But banks dont have to disclose what they make on your loan, so you may pay more than you should if you dont shop aggressively.
If your mortgage application involves challenges like a low down payment or poor credit score a broker might be able to help.
Keep in mind, youre not restricted to looking at only mortgage brokers or only banks. You can apply with as many different lenders and types of lenders as you want.
Cons Of Getting A Credit Union Mortgage
The benefits of credit unions arent as apparent when searching for mortgage rates, because credit unions dont have the marketing scale banks have, which is why they generally dont appear in searches for low rates, says Rich Arzaga, founder and CEO of Cornerstone Wealth Management in San Ramon, California.
The cons of getting a mortgage through a credit union include:
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How Direct Lenders Work
Direct lenders including banks, credit unions, and online lenders use their own money to fund mortgages. And their loan officers, processors, and underwriters all work for the same company.
That means you can go right to the source if you want a loan from a direct lender. For instance, if you want a home loan from Rocket Mortgage, you can go directly to Rocket and fill out a loan application.
Loan officers serve as the bank or lenders sales force. They usually earn commissions for originating mortgage loans, and the prices they charge may not be negotiable.
In addition, bank loan officers can only offer loan programs in their own portfolio, and that can limit the options available to you.
For example, if a direct lender isnt approved to do zerodown USDA mortgages, its loan officers will never be able to offer you one. They might not even mention a USDA loan as an option even if youre eligible.
Banks can still be flexible with mortgage pricing, though.
When youre shopping with direct lenders, its up to you to ask about the pricing options available and negotiate the rateandfee structure you want.
Pros of mortgage banks
Here are the pluses of dealing with a mortgage bank or direct lender.
Cons of mortgage banks
How To Choose Between A Bank And A Credit Union
Understanding the differences and similarities between banks and credit unions in Canada is the first step in deciding which option best suits your financial needs. Next, you need to determine what benefits, accounts, and products you need to be able to access. Make sure you consider:
- The types of chequing and savings accounts available
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Pros Of Getting A Credit Union Mortgage
More and more people are learning that they can find the best deal and the best service in town at a credit union, says Curt Long, chief economist and vice president of research for the National Association of Federally-Insured Credit Unions .
The benefits of getting your mortgage through a credit union include:
How To Find A Credit Union
Membership at credit unions generally isn’t open to the public.
To join, you must meet certain criteria or be affiliated with a particular employer, group or organization.
Some credit unions also welcome immediate family members of existing account holders with open arms.
You can locate a comprehensive listing of credit unions by state using the online directory found on MyCreditUnion.gov.
Once you’ve narrowed down your list, evaluate the following factors before making a final selection:
- Opening deposit: This amount should be between $5 and $25, according to MyCreditUnion.gov.
- Convenience: Is the nearest branch located within close proximity of your home or place of employment?
- Products: Most credit unions offer the same financial products as big banks, but some are private and operate on a significantly smaller scale.
- Rate of Return: The higher the rate of return, the better.
- Community Involvement: Do the staff really seem to have the best interests of the members at heart or are they operating similar to a for-profit financial institution?
You may have to schedule appointments at each of the branches to answer these questions, but doing so will ensure you select the credit union that best suits your financial needs.
Are you affiliated with a credit union?
If so, do you prefer their services over big banks?
Please share your thoughts in the comments below.
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What Does A Mortgage Broker Do
A mortgage broker is basically the middleman between you and a mortgage lender. They look over your loan application and say, Hey buddy, it looks like you can afford this much mortgage. Ill find you a good lender.
You shake hands and they go to a group of lenders and say, Hey folks, look here. My buddy can take out this much mortgage. Whos got the best deal?
A lender raises their hand, and the broker brings them to you, takes your money, and says, Hey, look! Its a perfect fit!
And thats about it.
Reasons To Consider A Credit Union Mortgage
Shopping for a mortgage loan is a great way to save on interest with a better loan rate. In addition to banks and mortgage brokers, home buyers may also want to look to mortgage lenders that may be in their neighborhood but can be overlooked: Credit unions.
Along with sometimes offering better mortgage interest rates, credit unions offer other benefits that other lenders may not do so well, such as having low or fewer fees, knowing the local market better and being able to make loans on unique properties.
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Access To A Home Equity Loan Or Home Equity Line Of Credit
The need for this type of loan could happen at any point in the home ownership process. For example, if youre buying a home, you may decide you want a home equity loan or HELOC as part of the down payment. This is a common strategy for buyers who are looking to avoid private mortgage insurance, which is very expensive.
Banks and credit unions are natural sources of home equity loans and HELOCs. If you already have a relationship with one, itll be easier to get either type of loan. Many banks and credit unions also routinely provide home equity loans and HELOCs along with new first mortgages.
But even after youve been in your home a while, you may still decide you need secondary financing. It could be to renovate or expand the home, or even to borrow money for other purposes, like debt consolidation or investment.
Whatever the reason, it will be much easier to get secondary financing if you already have a well-established relationship with the institution. You may even find that your bank or credit union regularly offer you opportunities for home equity loans and HELOCs.
And once again, since they already have much of your financial informationincluding your first mortgagethe application process will be both quicker and less complicated.
Service For Life Of Loan
Keep in mind that you aren’t just dealing with your loan in the underwriting process. You might be dealing with it for 30 years with equity loan needs and refinance options. Credit unions tend to keep loans in their own portfolio. They don’t sell them a week after underwriting closes to the highest bidder leaving you to fend with international call centers to find out why your bill is higher. Banks must also maintain rigid guidelines in underwriting because they plan on selling the loan. For example, if the loan program requires a 640 credit score but yours sits at 635, the bank might not want to approve it because they can’t sell the loan later. A credit union is more likely to consider and approve based on the overall package.
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