Here is one big reason to use a broker when shopping for a home loan: lender credits. Before we get into that, let me paint this quick picture for context (this will come together and make sense in a moment). As a licensed loan officer who works for a broker with some of the lowest fees anywhere, I am not only able to shop for the best possible deal on your home loan but I am also able to find deals that almost nobody else can find. Sometimes smaller lenders (or even big ones!) will offer discounts and incentives that make the loan pricing even better than we first thought. Think of a health insurance broker who shops every health insurance company (even the small lesser known ones) to find you the best priced policy for you and your family. Now, “What does this have to do with getting more cash at closing”, you ask? Well, I’m glad you asked!
Put shortly, a Lender Credit is when a lender offers you money off of your closing costs (in many cases, thousands of dollars) in return for accepting a higher interest rate than their current par rate (or the rate you qualify for at ZERO points). Why would it make sense to do this? Since my brokerage has the ability to find the best possible deals (on average we are one half to one full point lower), this also means I have the ability to provide my clients an excellent rate (one that is very competitive in today’s mortgage market) while also assisting with closing costs directly from the lender. For many, the reason for doing this is simple: change.
Most people don’t know this, but the large majority of consumers who have home loans will ultimately refinance those loans within 7 years of starting them. That’s right, most people don’t keep their original 30 year mortgages! Life happens, plans change, new careers are found in new states, goals get moved, and most borrowers wind up deciding to refinance. Why does this matter to this subject? What it means is that taking a slightly higher than par rate can be a very good thing for the right person in the right circumstances. If you are someone who does not intend to stay in your current loan for more than 5 years (say you plan to sell your home, move, or refinance when rates go down), or if things have changed unexpectedly and you need to refinance within 3-5 years of your original home loan opening, this means you will not have paid all of the interest on that slightly higher rate. Therefore, taking a lender credit to cover down payment costs could be super beneficial.
Food for thought…
