Your finances form a big part of your concern as you undertake a house hunt, no matter where you are looking in Sonoma County, whether in Petaluma, Santa Rosa, Windsor, Rohnert Park, or Healdsburg, or in the smaller areas of Cotati, Sebastopol, or Graton. One of the most critical factors, for those not sitting on a mountain of cash, is finding the funding for your home. As you look for funding sources, 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.
Let’s talk first about some other terms to clear up any confusion. “Loan officer” gets used pretty loosely, often for talking about people who offer or process loans. You many find loan officers at a mortgage broker’s office, 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; these institutions include savings and loans, savings banks, and credit unions. You may also run into consumer finance companies that make real-estate loans. A consumer finance company often charges higher interest rates and often makes high-risk loans. These consumer finance companies do not perform other banking duties.
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.
How Will Finding a Mortgage Broker in Sonoma County Help Me?
You’ve decided you need a loan as you begin searching for the perfect house in Sonoma County, whether you are in Windsor, Santa Rosa, Petaluma, Rohnert Park, Healdsburg, Graton, Cotati, or Sebastopol. Of course, you can do the research yourself and work with lenders directly. You may not feel comfortable going directly to lenders. On your own, you may not get the best rates. Many people 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. Or, banks may only take borrowers with the very best credit ratings.
When a bank does not suit a borrower, or a borrower does not suit a bank, the mortgage broker offers options. The mortgage broker brings the advantage of representing many different lenders. The broker should be able to find the best rate and loan terms 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. 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 offering the best loan for you. You are not bound to any single mortgage broker, and you should never sign an agreement saying that you are. Let multiple mortgage brokers do your mortgage loan shopping for you.
A local mortgage broker’s familiarity with their territory may help them explain the locality to the lender, making the lender understand the property’s value. For example, the local mortgage broker may know that private septic tanks are common in the area and will be able to reassure any lenders who question the presence of such a tank on a property. A certain style of heating system may be especially popular or desired in an area, and the broker can explain to the lender the value that system adds to the property. Local appraisers may use specific terms or categorize condition in certain ways that the local mortgage broker understands. With this familiarity, the mortgage broker can make better explanations to the lenders about what is and is not standard for the area.
You Want to Know That Your Sonoma County Mortgage Broker is Licensed
In your search for an honest broker, you someone who will help you find a good loan but who will also be a trustworthy guide. You need to avoid any predatory lenders. You don’t want a broker who will lead you into a bad relationship. The state of California regulates mortgage brokers in an effort to prevent any problems. All mortgage brokers must be licensed by California.
Only a California license is valid for mortgage brokering in California, and no other state’s license is recognized. However, a broker from out of state is permitted to work with a California mortgage broker. Usually, the two will then split the commission.
Be careful with advertisements you see or hear. California requires mortgage brokers to include license information in any advertising. 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. This disclaimer demonstrates the lack of a California license. So to close you will always need to find a mortgage broker licensed by the state of California.
What License Does My Sonoma County Mortgage Broker Need?
The state doesn’t distinguish between real estate brokers and mortgage brokers. Licensed real estate brokers may act as mortgage brokers. California’s three different real estate licenses impose different requirements on how the holders are required to deal with their customers. You must determine which license your mortgage broker holds. If the mortgage broker holds more than one, find out under which license your loan is being managed.
The Department of Real Estate (DRE) issues the most real estate broker licenses in California. Since a real estate license also allows the user to broker mortgages, this is the agency that grants the most mortgage broker licenses. A licensee under the Department of Real Estate can broker loans from many sources, including banks, credit unions, other financial institutions, etc.
One of the licenses the Department of Corporations (CORP) issues is 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. CORP also grants is Residential Mortgage Lenders (RML) license. The RML license is a result of the California Residential Mortgage Lending Act (CRMLA). This act mostly focuses on mortgage bankers and the origination and servicing of loans – that is, largely on the lenders themselves. However, it does allow an RML licensee to broker loans from institutional lenders.
No matter which entity grants their license or which kind of license they hold, every mortgage broker in California 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. There are a few exceptions to this regulation, but any mortgage broker who is brokering a loan for you needs the MLO in addition to their real estate license.
So, how do the licenses differ and how does it matter to you? Realtors and brokers decide on the business they want to conduct and choose which license to apply for based on that and on 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.
Establishing the technicalities of the license requirements is probably less critical for most residential consumers. But your mortgage broker’s license does matter to you for a few reasons. First, you want to ensure that your mortgage broker, whether in Windsor, Santa Rosa, Petaluma, Healdsburg, or Rohnert Park, or in Sonoma, Cloverdale, or Guerneville has a valid California license. Then you will want to know who grants the license so that you know where to direct any complaints. You will also know where to go for information about how the licensees must act when dealing with borrowers. 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 Sonoma County Mortgage Broker Owe Me Any Duty?
Broker compensation can raise some concerns, wherever you are looking in Sonoma County, whether in Windsor, Healdsburg, Rohnert Park, Santa Rosa, Petaluma, Guerneville, Sonoma, Cotati, or Sea Ranch. Mortgage broker compensation sometimes is paid by the borrower in the form of fees, such as a broker origination fee, processing fee, or application fee. Lenders might also compensate the broker. Typical compensation from the lender might include yield spread premiums (YSP). The broker gets a yield spread premium when the broker sells the loan to the borrower at a higher interest rate than the lender would otherwise charge. YSP is generally acceptable if the broker is not charging other fees. You can see the potential for a conflict of interest. Is the broker going to be more loyal to you? To the lender? To 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.
Because you live in California, you do not have to worry as much about this issues as others. Once you allow a mortgage broker to act as your agent in finding you a loan, the mortgage broker becomes your fiduciary. This imposes certain demands on your mortgage broker, namely that the broker has a responsibility to act in your best interests. The broker 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 My Sonoma County Broker Any Duty?
As a borrower, you owe your broker a fair fee for finding the loan, whether you are working with a broker in Windsor, Healdsburg, Petaluma, Santa Rosa, Rohnert Park, Sonoma, Graton, or Cloverdale.
Your broker will present fees, but often the accounting provided will include fees from many sources, such as the lender, the appraiser, and the title company. Fees have many different names, like processing fees, application fees, or document preparation fees. For this reason, it’s important to closely examine the fees and know who is charging what.
Federal law says that for federally related loans, brokers must give borrowers 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. It categorizes fees and identifies which ones may not change, which ones may change by a specified amount, and which ones may change radically. Be careful that you are reviewing an actual GFE, since some less-than-scrupulous operators may try to fake the look of the GFE without issuing a binding document. The federal GFE is a binding document.
Under the rules of the Department of Real Estate, California also requires a Mortgage Loan Disclosure Statement (MLDS). It must 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. These regulations apply when the loan is being managed under a license from the Department of Real Estate.
Advance fees are one area where borrowers often wonder if they are being dealt with fairly. 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 says that if the broker wants to receive fees in advance of the loan closing, the broker must have an approved “advance fee agreement” with the Department of Real Estate. You can 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. Mortgage brokers licensed under the Department of Corporations may charge lock-in fees before the loan closes only if the borrower and the lender have both signed a written agreement.
Title is an important concept because it represents your legal claim to the property. When you buy a property, most often your broker will use a title company to search for pre-exiting claims, or liens, on the property. You can use the title company your broker recommends. You have the right to choose your own title company. 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 deal. A mortgage broker is allowed to have a financial interest the title company, but you must be made aware of the relationship. Ask if the broker has an interest in the title company.
The title company will charge you to research your claim. Title charges typically include fees for performing the title search, for attorney fees, and for title insurance. This title insurance usually protects the lender. You must buy borrower’s title insurance if you want to protect yourself from claims after the loan closes. Besides title fees, the broker’s fee statements may include points or 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. As mentioned, a mortgage broker operating under license from the Department of Real Estate must include these fees in the MLDS.
Your Sonoma County Mortgage Broker Works With You Through Loan Close
You’ve come to the conclusion, as you search in Rohnert Park, Healdsburg, Windsor, Petaluma, Santa Rosa, Cloverdale, Sebastopol, or Salmon Creek for the ideal home that you will be needing a loan. 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.
Lenders require a loan application. Some mortgage brokers may help you complete the application 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 ask for documentation that the lender requires. 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. Both the mortgage broker and your actual lender must provide the mandated disclosures about the loan fees and its terms.
Note that 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 in case the loan does not close. Also make sure that you are not expected to pay at the close of escrow.
You should also, at this point, be aware of who your actual lender is, since the broker is just your intermediary. You want to know who is actually lending the money.
Loan processing starts after the application submission. The mortgage broker gets all the background information the lender wants and gives it to the lender’s underwriter. The underwriter uses the information to determine whether the loan is approved.
During this time, your primary responsibilities are twofold. Be responsive to the mortgage broker’s requests. Make sure your mortgage broker is meeting deadlines set by the lender. The more responsive you are, the more likely you will get the loan or learn your fate quickly. At this point, many buyers 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 make absolutely sure to get it in writing.
Your loan closing occurs when you sign. However, since this is the final stage, so you may want to review the loan before you close. 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 signing to close 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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