How mortgage lender can make a loan work when another cannot

Ever work with a mortgage company to later on find your loan won’t work, and another delivers? There’s a reason for it. Here’s what you should know about mortgage companies.

The Consumer Financial Protection Bureau has safeguards in place to make sure mortgage companies operate off of a level playing field with consumers. The level playing field specifically has to do with rate, and pricing, and borrowers getting a fair and reasonable offer from one lender to another. How banks look at your financial picture is something else entirely. The best scenario is  company combination aggressive underwriting standards while remaining competitive in their pricing. Ironically, these goals are at the opposite ends of each other. The more aggressive in underwriting, the more risky the loan, which leads to higher figures to the consumer where as more conservative underwriting companies offer attractive choices.

Relationship with Fannie Mae and Freddie Mac

The relationship your mortgage company has with Fannie Mae and Freddie Mac carries significance in whether or not they can fund your loan even if it is slightly outside of the box. For example if you’re dealing with a company who originates the loan, through another source, and then ultimately that loan sold on the secondary market, the more likelihood of that mortgage originator being more conservative in their product offering and underwriting. Simply put, the more hands touching the file, the more scrutiny that file is going to have when the loan ultimately is delivered to the end investor. Think one large source for your mortgage.

Investor overlays

Some mortgage companies still have what are called investor overlays which are additional constraints an individual mortgage company may have beyond what Fannie Mae and Freddie Mac deem as acceptable as traditional underwriting standards. For example some mortgage companies will not let you pay off debt to qualify while others do. This is typically a function of smaller mortgage company, that don’t have a type of financial backing larger financial institutions have, causing the loans they originate to be cleaner in terms of underwriting standards.

Products

Work with the lender that has a variety of products for what you’re trying to accomplish. For example if you have a debt ratio on a jumbo mortgage beyond 43% some companies will go as high as 49% while most have a hard ratio requirement at 43%. Another example could be an FHA loan with a credit score say at 600 versus one at 640. Some work with a 600 score, some do not. You as consumer have an absolute advantage working with company whose mission, products, rates and fees are geared towards helping you accomplish your financial goals. Most big banks do not have this model while direct mortgage banks often do.

Broker versus banker

Are you working with a mortgage broker or a direct lender? Mortgage brokers do not control the loan process. They are separate companies. Mortgage brokers use mortgage banks to fund their loans. When a file is submitted by a mortgage broker to a lender, that broker no longer has control of the process, the lender does. A direct mortgage banker does not compensate a middleman and subsequently has total control in the process from beginning to close. This also results in their own credit decisions as well as the most aggressive form of underwriting in most scenarios when it comes time to make it difficult or uniquely challenging transactions work.

Where you get your mortgage is entirely up to you a smart well informed consumer. Do not be fooled by a lender or mortgage company promising you the world just to get your business only to find later on, you’re loan has too many roadblocks or your financial picture does not meet the guidelines set forth by that company. Integrity in lending and helping consumers is quality you should look for when picking a reputable mortgage source.

 

Looking to get a mortgage? Get a free quote now.

 

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