BANKER VS. BROKER Most people head straight to their bank for their mortgage relying on the premise that their bank “knows” them and will do their best for them. This may be true however you must still qualify for a mortgage and more of your financial portfolio is tied to their institution. This isn’t necessarily a bad thing but there are other options. The bank can only offer its own products and services as well as the rates it believes are competitive and these reflect the bank’s own opinions on the market and economy. Bank interest rates tend to be similar but there is variability. A qualified mortgage professional or broker uses this variability in rates between banks to find you the best deal. Brokers are generally not tied to one particular institution and many shop for rates not only between banks but also with other lenders such as trust companies, co-ops and even insurance companies who also lend. In most cases, their fee is paid by the lender.
KNOW WHAT YOU CAN AFFORD Your mortgage professional will “qualify” you which means they will try to fit you to a financial formula in order to arrive at an estimate of how much you can comfortably spend on your purchase. Generally the rule of thumb is about 30% of your income moderated by factors specific to you, the economic condition and sometimes geography. The idea is to allow enough breathing space financially that you can afford your mortgage and still lead a normal life. The down payment and qualified amount operate to insulate you and the lender, to some extent, from normal shocks such as rate changes and possible employment or other life changes like having a child. The idea here is affordability and not to put yourself into a difficult corner.
Text by Joe Mancuso