What's the difference between a mortgage broker and a credit union?
There are several significant differences between a mortgage broker and a credit union/bank. One of the primary differences is that mortgage brokers do not lend money. Brokers like Vermont Mortgage Company work with lenders that we are licensed with and bring applications/loans to them. Because we do not work for a bank or credit union, our fiduciary responsibility is to the client. The lender we bring the loan to pays us for bringing them the loan, so there is no cost for working with Vermont Mortgage Company.
Mortgage brokers have to be licensed loan officers like any bank loan officer, so whether you are chatting with a mortgage broker or credit union loan officer, we all have the same licensing, credentials, etc. However, once I complete an application with an applicant, I am able to look at several different lenders to see who would be the best fit. We work with several banks, both local and national, and they each have certain strengths. If there is a characteristic of the borrower scenario that may be a better/easier fit with one of our lenders specifically, it may make sense to look there first. If all things are equal, I am able to shop for the best rate, lowest fees, etc.
Mortgage brokers are also exclusively focused on mortgage lending. We are all individually licensed and must maintain our licensure through annual training. Banks and credit union employees are able to be licensed under the umbrella of the bank and may focus on multiple areas of banking. Depending on the person at the bank, they may be more specifically trained in other areas, whereas all of the brokers at Vermont Mortgage Company are strictly mortgage loan officers.
And finally, mortgage brokers have access to the loan products of multiple lenders, so sometimes our array of loan product offerings may be more vast than what a single bank/credit union can offer. This also gives us some versatility in finding the product that fits the client best.
How do I know I'm getting the best rate, does my lender shop around for me?
Yes, my job is to find you the best rate that any of my lenders are offering when registering your loan. There are often several options, so I always talk these through with any client and we can choose the best fit together. It is important to understand the array of options that may be available to you and make the best selection based on your short and long-term goals with the property.
What are points and why might I want to buy them?
Points are percentage amounts of the loan amount, that borrowers can pay at closing to help lower their interest rate. Some lenders offer these in round numbers, usually in increments of .125%. Points are also sometimes called LLPAs, or Loan Level Pricing Adjustments. If you are buying or being charged points, they will show up in Section A of your Loan Estimate that is provided by your lender.
Some lenders will charge points to decrease your interest rate upfront. It is always important to compare closing costs when looking at estimates from various lenders. While two rates may be the same, it may be much more costly to work with one lender, as you could be buying the interest rate down.
With the lenders that we work with at Vermont Mortgage Company, points rarely fall as evenly as increments of .125%. They can range in any increment, starting at .001% of the loan amount. When looking at points, there are many factors to consider. If the spread is very nominal to get to a lower rate, for example, if it is .01% of a difference between a 5% or 5.125% interest rate, it likely would make sense to consider that. I will always do the math for my client, letting them know the break-even point. This is determined by the difference in monthly payment between the interest rates if you were or were not to buy the points, divided into the total cost of the points. Generally, if the breakeven is a few months or less, it would be worth considering as most people live in their homes for more than a couple of months!
I have worked with several borrowers who were buying their “forever home”, with intentions of never moving again. In those scenarios, especially in 2021 when interest rates were at their lowest, it may make sense to consider a larger point buy to buy the rate down as far as possible.
In a market like where we are currently with rates on the rise, points are a little tougher conversation. We are all hoping that rates will eventually come back (hopefully within the next couple of months!) so in this current climate, spending a couple thousand dollars on points to buy down a rate, that may decrease on its own in the short-term, may not be the best investment. Again, this is a conversation to be had in each specific loan, based on how interest rates are falling and the short and long-term plan for the client.
How does my credit score affect my mortgage rate?
Mortgage interest rates are impacted by three main factors- the type of loan product, your loan to value (down payment), and your credit score. Credit scores range from 300-850. Of the lenders that we at Vermont Mortgage Company work with, the lowest credit score we are able to work with based on the programs offered by our lenders is 580.
We as consumers get the best interest rates when our credit score is at or over 740. At 739 and below, at each 20-point increment change, there is a slight negative adjustment to the interest rate that you will qualify for.
When we pull your credit report, we do what is called a tri-merged report as we are pulling your score from the three main credit bureaus: Equifax, Experian, and TransUnion. We take the middle score of the three, and if there are multiple borrowers on an application, we take the lowest middle score as the qualifying score. We are not allowed to take an average or use any other calculation when determining the qualifying credit score.
Very commonly, applicants will tell us their credit score ahead of time, as reported by a third party like Credit Karma, or perhaps from one of their credit cards. Sometimes, these scores are reported from only one bureau, so always make sure to read the fine print. We find that these scores can vary quite a bit based on the tri-merged credit report we pull. I have seen as much as 100-point differences between top and bottom scores.
If you are interested in checking your credit report, as consumers, we are all entitled to one free annual credit report which can be obtained at annualcreditreport.com.