Stepping Into Home Ownership in Alameda County
There are many, many phases in buying a home, no matter where you are looking in Alameda County, whether in Fremont, Oakland, Berkeley, Hayward, or San Leandro, or in the smaller areas of Dublin, Newark, or Pleasanton. One of the most critical steps, unless you have a pile of cash on hand, is to finance your home. You may find yourself using a mortgage broker to find a loan. A mortgage broker is simply someone who helps to connect a borrower with a lender.
There are several other intermediaries out there, so let’s take a quick look at some other terms. A loan officer is a general term, and you many find loan officers at a mortgage brokers, at a bank, or at other lending companies. A mortgage banker lends money directly to consumers for real estate transactions. This differs from a mortgage broker, since the broker does not lend money directly – in most cases. A financial institution is a company that provides banking services as well as making loans. Examples of financial institutions include savings and loans, savings banks, and credit unions. You may also find consumer finance companies that make real-estate loans, most often at higher interest rates than typical financial institutions, and often for high-risk loans. These consumer finance companies do not hold deposits the way banks and savings and loans do.
So, with all these different options, why should you choose a mortgage broker? How can you get the best success from working with your broker? Use the information below to give you a helpful overview of mortgage brokers and how they can best serve you.
Who Am I Working With In Alameda County, and Why?
When you start to look for a loan in Alameda County, whether you are in Berkeley, Oakland, Fremont, Hayward, San Leandro, Pleasanton, Dublin, or Newark, you will probably want help. Of course, you can do the research yourself and work with lenders directly, but this can not only be confusing, you may not actually get access to the best rates. Many people also go to their bank, whether their bank is a branch of one of the big commercial banks, or a smaller bank. The big commercial banks are banks like Bank of America, Wells Fargo, etc. When you go to your bank, in almost every case, the loan officer at the bank can only offer you loans that are provided by that institution. In other words, the loan officer represents a single lender. You may not like the terms that lender offers. In other cases, these banks may only take borrowers with the very best credit ratings.
When you want more options, you can use a mortgage broker. The advantage of a mortgage broker is that the broker represents many different lenders and should be able to find the best rate for you. Mortgage brokers also work with buyers with less than perfect credit, enabling more people to get loans. The best brokers will have the most relationships and the most options to offer you. You should not be shy about shopping around for a mortgage broker. You are looking for the best loan terms, and a particular mortgage broker might not have the relationship with the lender you need to connect to. You are not bound to any one mortgage broker, and you should never sign an agreement saying that you are. Let multiple mortgage brokers do your mortgage loan shopping for you.
You can also consider the benefits of working primarily with a local mortgage broker. A local mortgage broker may be more familiar with the local territory and be able to better explain it to lenders. For example, the local mortgage broker may know about private septic tanks if they are common in the area, or may be familiar with the different heating systems. Similarly, the local mortgage broker may have a better understanding of the terms and classifications that local appraisers use. With this familiarity, the mortgage broker can make better explanations to the lenders about what is and is not standard for the area.
How Do You Know Your Alameda County Mortgage Broker is On the Level?
Of course, as you are looking for a loan, you not only want the best rate and terms possible, you also want to know you are dealing with a reputable broker. You want to avoid any predatory lenders, and don’t want a broker who will lead you into a bad relationship. To help prevent problems, the state of California requires that all mortgage brokers be licensed by California. Only a California license is valid for mortgage brokering in California; California does not recognize any other state’s license. However, a broker from out of state is permitted to work with a California mortgage broker. In this case, the two will probably split the commission.
California requires that license information be displayed in any advertising the California mortgage broker deploys. If the advertisement doesn’t include license information, the mortgage broker is not entitled to work in the state. Similarly, you may notice Internet advertising will explicitly state that services are not offered in the state of California. Again, this indicates the lack of a California license. So you will always want to find a mortgage broker who is licensed by the state of California.
What Kind of License Does Your Alameda County Mortgage Broker Need?
Never embracing the simple, California actually licenses real estate brokers in several ways. First, every mortgage broker must have a real estate broker’s license. The state does not make a distinction in licensing between real estate brokers and mortgage brokers – a licensed real estate broker may act as a mortgage broker.
California does offer different real estate licenses, and they impose different requirements on how the holders are required to interact with their customers. You should always find out which license your mortgage broker holds. If the mortgage broker holds more than one, you should find out under which license your loan is being managed.
The majority of real estate broker licenses, and hence mortgage broker licenses, are granted by the Department of Real Estate (DRE). A licensee under the Department of Real Estate can present loans from many sources, including banks, credit unions, other financial institutions, etc. The Department of Corporations (CORP) licenses Residential Mortgage Lenders (RML) and California Finance Lenders (CFL). The RML license came about because of the California Residential Mortgage Lending Act (CRMLA). This act was developed to focus on mortgage bankers and the origination and servicing of loans – that is, it largely focuses on the lenders themselves. However, its conditions do allow an RML licensee to broker loans from institutional lenders. As with all license types in California, the person actually performing the brokering must be a licensed mortgage loan originator employed by the RML licensee. CORP also grants the CFL license. The CFL license also allows licensees to broker mortgages, but it can only broker loans between CFL companies. Many companies, including many Fortune 500 companies, have CFL licensing.
As mentioned above, any mortgage broker in California, no matter which entity grants their license or which kind of license the mortgage broker holds, must also have a mortgage loan originator license (MLO). This is because California has adopted and implemented a federal standard. Even if the mortgage broker is only brokering the loan and is not actually originating, or providing the money for it, they must have the MLO license.
Realtors and mortgage brokers choose the different kind of license they will pursue based on the kind of business they want to do. There are different levels of education requirements for each, with the DRE requiring both education before licensing and continuing education. There are also different levels of liquidity that must be demonstrated for CFL and RML licenses. These decisions are not so important to you as a consumer. But knowing a little about the licensing is important to you, the consumer, for a few reasons. First, you want to ensure that your mortgage broker, whether in Berkeley, Oakland, Fremont, San Leandro, or Hayward, or in Alameda, Union City, or Castro Valley has a valid California license. Then you will want to know what kind of license it is so that you know where to direct any complaints or do any research about how the licensees must act. You can use the Department of Real Estate Web site or the Department of Corporations Web site to ensure that your mortgage broker is licensed. The departments also offer a single location for searching a combined list of license holders at this Web site.
What Does My Alameda County Mortgage Broker Owe Me?
As you search for a good mortgage broker in Alameda County, whether in Berkeley, San Leandro, Hayward, Oakland, Fremont, Castro Valley, Alameda, Dublin, or Livermore, you will come to realize that a mortgage broker is compensated in several ways. Sometimes that compensation comes in the form of fees, such as a broker origination fee, processing fee, or application fee, paid by the borrower. Sometimes brokers are compensated by the lender. The lender gives the broker a yield spread premium (YSP). A yield spread premium comes about when the broker sells the borrower a loan at a higher interest rate than the lender would otherwise sell the loan for. A YSP is generally acceptable if the broker is not charging other fees.
As a borrower, you can see that there is a potential conflict of interest. The lender may be giving a bigger incentive to sell a loan at a higher rate. You should always ask your mortgage broker how he or she is getting paid – is it all from borrower fees? Or from the lender? You have the right to ask and to be answered. California does have one protection in this regard that many other states do not. In California, once you allow a mortgage broker to act as your agent in finding you a loan, the mortgage broker becomes your fiduciary. This means that the mortgage broker has a responsibility to act in your best interests and must disclose information that could affect the transaction – for example, relationships the broker may have with the lender, title company, or other involved entity. The concept of “fiduciary” responsibility is somewhat complicated but requiring the mortgage broker to act as your fiduciary prevents the broker from playing two sides against each other for his or her own benefit. It’s a concept that not many states have embraced.
What Do I Owe my Alameda County Broker?
Your mortgage broker, whether working in Berkeley, San Leandro, Fremont, Oakland, Hayward, Alameda, Pleasanton, or Union City, provides a legitimate service in finding you a loan and deserves a fair fee. Others involved in the lending process – including the mortgage banker or the other lender – will have fees as well. These may be called processing fees, application fees, or document preparation fees. To protect you, there is a federal law that requires borrowers be given a Good Faith Estimate (GFE). The Good Faith Estimate must be provided within 3 days of filing the application and details the related fees. The Good Faith Estimate comes on its own specific form, and you should look for its title and not be deceived by similar-looking but non-binding forms issued by shady operators. The Good Faith Estimate categorizes fees and identifies which ones may not change, which ones may change by 10% or less, and which ones may change radically.
California also requires a Mortgage Loan Disclosure Statement (MLDS) be made within three days of the loan application if your loan is being managed under a Department of Real Estate license. The California disclosure requires the broker’s compensation to be outlined, including who is paying it – the borrower, the lender, or both. You must be told of any changes in the amount the mortgage broker is receiving.
A couple of other questions tend to come around fees. One is the question of “lock in” fees, or fees to guarantee a specific interest rate for a set period of time. In California, when the mortgage broker is licensed by the Department of Real Estate, the law requires that if the broker wants to receive fees in advance of the loan closing, the broker must have an approved “advance fee agreement” on file with the Department of Real Estate. You should check with the Department to see if such an agreement exists. Under the Department of Real Estate, the only advance fees the broker can charge without this agreement are credit report and appraisal fees. Those mortgage brokers licensed under the Department of Corporations may charge lock-in fees before the loan closes only if you and the lender both have signed a written agreement.
Your mortgage broker will use a title agency to make sure there are no competing claims or liens on the property. You can allow your mortgage broker to use the title company of his or her choice, but you have the right to choose your own title company, too. Be aware that for some properties, the contract may include a specific title company. Sometimes if you work with the same title company for more than one transaction, you can get a better rate. A mortgage broker is allowed to own all or part of a title company, or otherwise have a financial interest in the title company, but you must be made aware of the relationship. You should ask if such an interest exists. Your loan process usually includes the purchase of title insurance, but this title insurance is for the lender. If you want to protect yourself from any situations that may arise after the loan closes, you might want to buy borrower’s title insurance.
The costs of the loan might include points, title charges, and prepaid items. A point equals one percent of the loan amount. It is interest paid upfront and usually lowers the interest rate. Besides the appraisal and credit report, you might over other upfront costs that you prepay. These include tax and insurance placed in escrow or interest that accrues before the first loan payment. The title agency will likely charge for the title insurance, title search, and any attorney fees. As mentioned, a mortgage broker operating under license from the Department of Real Estate must include these fees in the MLDS.
Working the Loan Process with Your Alameda County Mortgage Broker
Whether you are house-hunting in Hayward, San Leandro, Berkeley, Fremont, Oakland, Union City, Newark, or Piedmont, you might need a loan. A mortgage broker is good way to find a loan, especially if you have a situation where banks might not grant you a loan. Mortgage brokers are a good way to find other lenders. The first step is to find a good mortgage broker. The state warns that you might not always be able to tell if you are working with a mortgage broker, so be sure to ask.
Once you have found the loan you want, you will continue to work the mortgage broker who found the loan through the loan closing. The loan process begins with the application. Some mortgage brokers may help you with this in person, while others offer Web sites to enter the information, or in other ways allow you to fill out the application yourself. It is legal for you to pay for a credit report and appraisal immediately – these two items are exempted from the regulations surrounding other “advance” costs. Sometimes, you are told you will not have to pay for the appraisal and credit report. If so, get this in writing and be sure to clarify that you will not be asked to pay if the loan does not close and that you are not expected to pay at the close of escrow. Both the mortgage broker and your actual lender must provide the mandated disclosures about the loan fees and its terms. Your mortgage broker will be asking you for required documentation. At this stage, it’s important to ask for clarification of any of the fees presented to you and especially any questions you have about the loan’s terms. You should also, obviously, be aware of who your actual lender is.
After the application, you move to the loan processing stage. In this phase, the mortgage broker gets all the background information required and gives it to the lender’s underwriter. The underwriter uses the information to determine loan approval. During this phase, your primary responsibilities are to be responsive to the mortgage broker’s requests and to stay on top of the process to make sure the mortgage broker is meeting deadlines. The more responsive you are, the more likely you will get the loan. At this point, many choose to lock-in the interest rate. Note that sometimes, you can negotiate agreements about interest rate lock-ins, allowing you to change the rate if the interest rate drops. If you want to do this, be absolutely sure to get it in writing.
Once the loan is approved, there is a final signing that closes the loan. You can get a copy of the estimated HUD (Housing and Urban Development) settlement statement 24 hours before the closing. You must request the HUD statement in writing before that 24-hour period begins. This gives you time to review and possibly request changes before signing. You may find yourself closing your loan in your mortgage broker’s office, at the title company, at the escrow company, or as the result of a signing service delivering the documents. Wherever you sign, you are making the commitment to the loan. You need to understand what you are agreeing to. Ask for clarifications for anything you do not understand. It’s worth considering having an attorney read over the loan documents before you sign. Although an attorney’s review costs money, it can save you from even more costly traps hidden in the documents by a deceptive lender.
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