You may face overwhelming decisions when you decide to house hunt, no matter where you are looking in Santa Clara County, whether in Sunnyvale, San Jose, Mountain View, Santa Clara, or Milpitas, or in the smaller areas of Morgan Hill, Campbell, or Gilroy. One of the most critical steps, for those not paying in cash, 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.
You may encounter other terms, so let’s talk about them, for a moment. A loan officer is a general term, often used to refer to people who offer or process loans. 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, including savings and loans, savings banks, and credit unions. You may also find consumer finance companies that make real-estate loans; they often charge higher interest rates than typical financial institutions, and often make high-risk loans. These consumer finance companies do not hold deposits the way banks and savings and loans do.
So, what brings you to 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.
Why is a Mortgage Broker a Good Idea In Santa Clara County?
Now that you’ve decided you to look for a loan in Santa Clara County, whether you are in Mountain View, San Jose, Sunnyvale, Santa Clara, Milpitas, Gilroy, Morgan Hill, or Campbell, you’ve also decided you want help. Of course, you can do the research yourself and work with lenders directly. However, you may not feel comfortable going directly to lenders, and you may not get the best rates. Many people also go to their bank, whether their bank is a branch of one of the big banks, like Wells Fargo or Bank of America, or a smaller bank. When you go to your bank, in almost every case, the loan officer at the bank can only offer you loans that are sold by that bank. 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.
Mortgage brokers often take customers who cannot or will not work with banks. The advantage of a mortgage broker is that the broker represents many different lenders. The broker 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 feel free to shop 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 may encounter some unexpected benefits if you work 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 understand 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.
Knowing Your Santa Clara County Mortgage Broker is Someone You Want to Work With
You definitely want the best terms and rates for your loan, but you also want someone who can reliably guide you through the process. You want to avoid any predatory lenders, and don’t want a broker who will lead you into a bad relationship. To help prevent issues, 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 which 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 to close you will always need to find a mortgage broker licensed by the state of California.
How Many Licenses Can My Santa Clara County Mortgage Broker Have?
Your mortgage broker may hold one of three licenses issued by the state. Every mortgage broker must have a real estate broker’s license. The state does not distinguish between real estate brokers and mortgage brokers – a licensed real estate broker may act as a mortgage broker. California’s different real estate licenses impose different requirements on how the holders are required to interact with their customers. You must 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 Department of Corporations (CORP) grants the Residential Mortgage Lenders (RML) license. 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 issues the California Finance Lender (CFL) license. The CFL license allows licensees to broker mortgages, but it can only broker loans between CFL companies. Many companies, including many Fortune 500 companies, have CFL licensing.
Most real estate broker licenses in California, and hence mortgage broker licenses, are granted by the Department of Real Estate (DRE). A licensee under the Department of Real Estate can broker loans from many sources, including banks, credit unions, other financial institutions, etc.
Under a federal standard that has been recently adopted at the state level, 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). 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.
Licensing decisions are made by realtors and brokers based on the business they want to conduct and other factors. There are different levels of education requirements for each license, 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. Knowing the technicalities of the license requirements is probably less critical for most residential consumers.
But consumers do want to be aware of the broker’s license for a couple of reasons. First, you want to ensure that your mortgage broker, whether in Mountain View, San Jose, Sunnyvale, Milpitas, or Santa Clara, or in Palo Alto, Cupertino, or Holy City has a valid California license. Then you will want to know who grants the license 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.
Does My Santa Clara County Mortgage Broker Owe Me Something?
Mortgage broker compensation can cause concern, when you are working with a broker in Santa Clara County, whether in Mountain View, Milpitas, Santa Clara, San Jose, Sunnyvale, Holy City, Palo Alto, Morgan Hill, or Stanford. Mortgage broker compensation sometimes 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 may give 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. YSP is generally acceptable if the broker is not charging other fees.
It’s readily apparent that a conflict of interest looms. Is the broker going to be more loyal to you or to the lender or his or her own pocketbook? Always ask your mortgage broker how he or she is getting paid – is it all from borrower fees? Or from the lender? Or both? You have the right to ask and to be answered.
Beyond your own inquiries, California does have one protection in this regard that most 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, but California has explicitly decided that brokers owe this duty to their customers.
Do I Owe Something to My Santa Clara County Broker?
The borrower does have certain responsibilities to the mortgage broker, whether he or she is working in Mountain View, Milpitas, Sunnyvale, San Jose, Santa Clara, Palo Alto, Gilroy, or Cupertino. The borrower owes a fair fee for the broker’s work in finding the loan.
You will see many fees as you start the process, and you should careful and inquisitive about them. Fees may turn up called processing fees, application fees, or document preparation fees. They may be charged by lenders, title companies, and appraisers. 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 outlines the related fees. The Good Faith Estimate comes on its own specific form. 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.
When your broker is licensed by or working the loan with a license from the Department of Real Estate, the state of California also requires a Mortgage Loan Disclosure Statement (MLDS) be made within three days of the loan application. 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.
Advance fees often cause borrowers angst. One advance fee is the “lock in” fee, a fee paid 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. 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 the borrower and the lender both have signed a written agreement.
Your title, or claim to own your property, is important and needs to be protected. As part of the purchase, you need to make sure that no one else can claim the property. Your mortgage broker will use a title agency to search records to make sure there are no competing claims or liens. 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 have a financial interest the title company, but you must be made aware of the relationship. Ask if such an interest exists. Your loan process usually includes the purchase of title insurance, but this title insurance is for the lender. You will have to buy borrower’s title insurance if you want to guard yourself against property claims made after the loan closes.
You might also pay 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 With Your Santa Clara County Mortgage Broker for the Loan
You’ve come to realization that you need a loan as you search for a house in Santa Clara, Milpitas, Mountain View, Sunnyvale, San Jose, Cupertino, Campbell, or Los Gatos. A mortgage broker can help you find that 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 the loan is found, you need to apply for it. Some mortgage brokers may help you with this in person, while others leave you to fill it out for yourself, either on a Web site or by other means. 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. 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. You should also, obviously, be aware of who your actual lender is.
In the next phase, the processing 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 if the loan is approved. During this time, 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 or learn your fate quickly. At this point, many opt 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, you must be absolutely sure to get it in writing.
Signing signals the close of the loan, but it also locks in everything, so be sure before you sign. You can get a copy of the estimated HUD (US Department of 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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