Mortgage companies are an essential part of our economy. They help to facilitate the growth of our society by providing loans for homes, investment properties and cash for a number of uses to homeowners with equity. For many Americans, however, working with a mortgage company tends to inspire the same reaction as a visit to the dentist. Much of this can be attributed to unfamiliarity with what mortgage companies really are and how they work. With a bit of knowledge to inform your expectations, dealing with a mortgage company can actually be a smooth experience.
Mortgage companies work with prospective borrowers to provide them with loans against either a new home for purchase or an existing home when refinancing. Furthermore, mortgage companies are required to follow what are called compliance regulations, set forth by the federal government, when processing a mortgage loan application. The Truth in Lending Act and Real Estate Settlement Procedures Act are two of the most common compliance guidelines for borrower protection that must be followed by all mortgage companies.
Mortgage companies exist for the sole purpose of making loans against real estate. For most mortgage companies, acceptable types of real estate center on one-t o four-unit residential properties. The loans they provide against such properties allow creditworthy borrowers to have a number of options when dealing with their real estate transactions. Borrowers can obtain a purchase loan to acquire a new home to live in or an investment property to rent out. Mortgage companies also allow those who already own their homes the flexibility to conduct a rate and term refinance to lower their monthly payment and improve their cash flow. Those who have a significant amount of equity in their homes can do a cash-out refinance as a way of obtaining a lump sum of money to consolidate high interest debt, remodel their home or start a business.
The time line for a typical mortgage transaction is a fluid and ever-changing thing. In an average market, most companies can get a purchase transaction done in anywhere from 20 to 30 days. As markets get hot and more business is done, the turn-around times on such transactions can sometimes double. It is important to note that purchase transactions are almost always given priority over refinances for the simple reason that with every purchase comes a purchase contract that stipulates a deadline by which to complete the sale. Refinances, on the other hand, are generally seen as conveniences that are not as time sensitive. Therefore, even in slow markets, they can take upward of 60 days to complete.
Mortgage companies come in one of several different types. From the perspective of the borrower seeking a mortgage they can choose to deal with either a broker or a banker. Brokers are independent agents who have standing relationships with mortgage lenders. A broker will act on your behalf as an intermediary between you and the bank. He will use his expertise to inform you about the various loan programs available to you based on a complete picture of your given situation. Once a decision is made, he will put together and submit your loan file to the lender he believe best suits your needs. Bank-based loan officers, on the other hand, are more limited in that they can only offer you a loan based on the programs that their bank offers. However, many times banks can get away with offering a borrower a lower rate than a broker-based mortgage lender. This is because most banks keep their loans in their portfolio and do not have to worry about making their money back by selling the loan to Wall Street.
Any borrower seeking a loan should be aware of the pitfalls of predatory lending. Predatory lending encompasses a host of actions done by a broker or lender that do not have the borrower's best interest at hand. Examples of this would be taking a borrower out of a fixed-rate loan and placing him into an adjustable rate mortgage with a low teaser rate. A quick way to see if you are being duped in this fashion would be to check to see the annual percentage rate of your current mortgage and then check the good faith estimate (required before loan submission on all mortgage transactions) to see what the new APR you are being offered is. The APR will always be an accurate indicator of what a loan is costing in real terms.