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Is it better to go through a mortgage lender or a bank to apply for a FHA loan?

My husband and I are interested in purchasing a house in the next year or so.  We have spent the last year getting out of debt & cleaning up our credit.  Our current credit score is 628 (my low) and 700 ( his high).  We are both teachers and will need to apply for a FHA loan in order to buy.  Is it better to approach a bank or an approved mortgage lender to get pre-approved for a loan?  Also, is it a good idea to maintain our pre-approval by re-applying every 90 days or should we wait to apply until we are closer to being able to purchase?
  • December 29 2010 - Sunnyvale
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Answers (31)

For a great CA Lender from an OH Realtor call Jerry Dolan, Premier Agent. Tell em Large Marge sent ya!

This thread did not get as heated as I thought I would see. Glad to see eveyone playing nice.

Can the Realtors please stop quoting mortgage guidelines though? You don't need a 640 score. With a 620 the rate is .125% worse. With a 600 it's .5% worse.

  • February 02 2011
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Profile picture for Andrew Ginter
Mortgage lenders are generally going to offer better service to you the client.  On average, bank loan officers do not thrive on referral business.  Mortgage brokers and bankers do, so service and a diversity in product line matters much more to them.  I know, right now in particular there is just one lender doing FHA loans under a 640, Wells Fargo retail division.
  • February 02 2011
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"Norm..Are you saying that asking a Realtor in Ohio for a suggestion of a lender in California is not a good idea?"

If he understood that any NMLS endorsed loan officer in California is also a real estate agent, he may realize that his comment is a bit foolish. 

Also, how does one become a "premier agent" in a week? 
  • February 02 2011
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I wouldn't ask a real estate agent in Ohio for a lender recommendation in Ohio much less for CA

explain CA to most LOs that don't do CA and their eyes glaze over.
  • February 02 2011
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Norm..Are you saying that asking a Realtor in Ohio for a suggestion of a lender in California is not a good idea?
  • February 02 2011
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Call a Realtor

Or for competant advice, call a lender
  • February 02 2011
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It really depends on the loan officer. You have to do research and ask questions and try to sort out the losers. Call a Realtor, they should have a couple of good lender that are very good.

  • February 02 2011
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If you want the contact info to a very knowledgable and reputable FHA lender, please go to the directory on this site.

and Arthur, what's up with the "wink wink"? I don't get it.
  • February 02 2011
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Interest rates are not going to get any lower and are expected to increase gradually this year. This will hinder your DTI, as you will have a higher payment than if you refi'd now. If down payment is an issue, there are down payment assistance programs(DPA) that will pay it for you and the lowest MIDDLE credit score of all borrowers is used to qualify. The min score for most of these DPA programs is 620. It sounds like you would benefit more from buying now vs later. If you would like the contact info to a very knowledgeable and reputable FHA lender, contact me and I will get it to you.

Hope this helps,

Holly

  • February 02 2011
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Hello Janemartin48,

Depending on who you ask, you're bound to get a different answer, but the real key is finding a person at either a bank or a mortgage company that specializes in FHA loans.

If you talk to a BANKER (wink, wink), they'll tell you, "We do hundreds of FHA loans every month, so we're good at it".  When you talk to smaller mortgage company, they'll talk about how they can shop all the major lenders for you to save you time and money.  Both points are valid, but I still feel it really comes down to how confident you feel about the person working wtih you on your mortgage application.

To answer your question about Pre-Approval, I would take the time to get pre-approved now with the idea that as long as the mortgage market and your credit profile don't change too much, you'll probably be pre-approvable again later.  Then I would go back to your lender just before you start the home search to get re-approved.  There's probably not a need to re-apply every 90 days.

Depending on what state you purchase in, there are sometimes state bond loans available at reduced rates just for Educators, so be sure to ask about those.

It sounds like you're doing all the right things so far to improve your chances of being approved.  Best of luck to you!
  • February 01 2011
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Hi Jane,

I have a little different point of view regarding your question. First, a little about FHA guidelines. As of this date, 01/27/2011 FHA's minimum score requirement is a 500 middle credit score. Now you would be hard pressed to find any lender that will conform to FHA guidelines strictly. Due to the mortgage crisis most lenders, Banks, Brokers, Wholesalers, In house lenders have implemented "overlays". These overlays are a protection measure for the lender to raise the credit quality and performance of the portfolio and to find an investor who will be interested in taking on the risk.

Now, i think if you will shop a little harder you can find a lender that will do a lower than average credit score overlay. The next thought is we what about the fees... good question.... in our case we do not charge any more fees for a 690 middle credit score for an FHA loan than we charge for a 600 middle credit score FHA loan. Obviously this is not the norm. Rate wise, our FHA rates are the same for the 2 credit scores with identical LTV's, granted we do not have the lowest rates but they are within .50 point of the best rates.    Do your homework, as exhausting as it may be. It doesnt matter whether you chose a banker or a broker, what matters is the overlay's they have implemented.
  • January 27 2011
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STRS loans require all LLPA to be paid as Line Items.  

So with a 620 score, the buyer would have a 3% fee for FICO score, .25% for Adverse Market, Origination Fee 1-1.25%, plus processing and lender admin/UW fees would exceed 5%.  Max seller concession allowed is 3%.  

It very well could still be the best choice for a buyer, it is a great program, but I find when you compare a low FICO STRS to FHA, it is can be close race with several plusses and minuses on each side.
  • January 27 2011
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I'm not sure where you come up with 5% as I've never seen closing costs like that on this loan.  In any event, there are sellers out there that would be happy to cover those costs if the offer is structured accordingly. Best of luck.
  • January 26 2011
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STRS is a great purchase program, but for 628 FICO, it would result in very high closing costs for the buyer since the LLPA adjustments must be paid as Line Item fees and cannot be built into the interest rate.   Origination fees alone would be around 5% of loan amount.

AA - it seems you have another admirer of your profile.   
  • January 26 2011
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If either of you are public school teachers, the CalSTRS loan is by far the best option out there.  The program is a 3% down payment, an 80% first mortgage, and a 17% second mortgage at the same interest rate as the first. The second mortgage is simple interest (as opposed to capitalized) and there are no payments on it for 5 years. It just so happens that I specialize in these, so let me know if I can help.
  • January 26 2011
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  • January 24 2011
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Jane, since you both are teachers, I would ask your mortgage professional about the Good Neighbor program.  Please contact a local mortgage professional through referrals of friends and family.  You do not need to maintain the pre-approval, wait until you a ready to buy.
 
Best Wishes!
Melinda
  • January 07 2011
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In a nutshell (and agreeing with others), "Bank on the banker (loan officer), not the bank".  I have worked as a banker, broker, retail and wholesale...and I have worked with stellar professionals at all levels.  I have also witnessed gross negligence...get some references, review the blogs or social media contacts of a couple people.  Best of luck!
  • January 07 2011
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  • January 07 2011
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The individual who pre-approves you is more important than the particular institution they work for. You want somebody who is communicative, responsive and helpful throughout the process. The FHA rules for borrowers and properties are the same regardless of where you go to get the loan so find a mortgage professional who inspires confidence in you.
If you need a referral or three I am happy to provide them. Just shoot me a quick email to ask.
  • January 05 2011
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To repeat for a third, if not fourth time, ask someone you trust for a referral to a good mortgage consultant.

As far as your credit scores, if you're both going to be on the loan, the lender will throw out each of your lowest and highest scores and use the lower of the two middle scores as your qualifying credit score.

It's preferrable to have both or your middle scores over 640. Anything lower will cost you either in the rate or fees.

Lastly, since you know you're going to be buying in the near future I think you should have a mortgage consultant review your credit now. This way they can let you know if they see anything that would be of concern and you can work on clearing it up.
  • January 05 2011
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I have worked for a broker and for a mortgage lender.  In both instances I have had good and bad co-workers that worked with me originating loans.

As stated earlier in this thread, it is about the individual you work with, not the the type of entity they work for.  

Ask around, friends, family, your Realtor, or even your insurance agent could recommend a good professional for you to work with.
  • January 03 2011
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Keep working on your credit score and get informed about mortgage loans. No two loan originators or their firms do business in the same manner. Get pre-approved when you are ready to buy.

If you want help with raising your score I would be happy to enroll you in a great program at no charge. It may take 3 to 6 months to get your score to where it needs to be.

Happy funding, Rudi
  • January 02 2011
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Jane, You have three options to chose from a Mortgage Broker, Mortgage Banker and A Retail Bank.  The short answer is find a Knowledgeable loan a officer that works for a mortgage bank.  A Mortgage Broker has no approval authority and no control over the deal.  However they can shop for rates.  A retail bank has control over the deal and approval authority but in most cases has less competitive rates.  You will also be working with a representative who's primary function is not writing loans.  They may also be opening checking accounts for the most part or CD's ect..Turn times are often slow as well.  A Mortgage Banker has flexibility to shop for rates and have approval authority and control over the deal.  A loan officer that works for a Mortgage Banker has one function and that is to wright loans.  You will both need a middle FICO score of 640.  You can get an FHA loan with less but it will make the process a lot easier if you both have a 640 mid score.  Hope that helps feel free to contact me with further questions.
                                 
                             
  • January 01 2011
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Wayne, I agree with your final paragraph and I'm sure we've got lots of common ground.

However, the "brokers caused the problem" just does not carry any verifiable validity.  Did people licensed as brokers contribute?  Sure.  I can also quote you conversations I had with a Countrywide regional manager about how I KNEW his retail loan officers were committing fraud with the Fast and Easy (no verification) loan they pushed heavily. He denied to the day they closed their doors that their loan officers would do such a thing. He quoted the same "compliance department" garbage.

Brokers rightfully should face licensing laws - but the fallacy is that they haven't been in the first place.  I've been licensed in CA since the early 1990's and other states since then. I have no idea if the rest of the country was unlicensed but I'd doubt it. All that's changed is that there is now a national standard that in lots of cases is weaker than the state's requirements.  WA implemented the national standards way back in 2007.

Banks avoided the the bulk of the licensing issues for one simple reason - their lobby has WAY more money than the broker's lobby.  Plain and simple.

I agree that big banks should be better at compliance, but there's absolutely no way that bears out in real life.

Who does an independent mortgage broker or banker answer to?  Their clients and their referral sources.

Who does a big bank loan officer answer to?  Wall Street and the legal obligation to maximize the stockholder's value in the company.  I'm not an economist but I'd argue that obligation can run contrary to doing what's right for the customer.  That's why I left my employment with a big bank in the first place.  I got tired of doing what my managers told me was in the best interest of the bank.
  • January 01 2011
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Michael,
"can you name one mortgage broker that caused a loan to be changed"?
Really!  Where do you think a  portion of loans "big banks" closed came from?  Why did regulations tighten and require mortgage brokers to be licensed? We all know about the big banks that have failed but we all also know about large #s of mortgage broker firms that are no longer in business.  Why have the sub prime lenders disappeared?
We can probably agree on one thing....... passing test/exams has nothing to do with honesty and integrity. Anyone that is dishonest, untrained, commits fraud, and/or violates lending laws should not be allowed to originate mortgage loans.  HAPPY NEW YEAR!
  • January 01 2011
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Jane, the issue of banker vs broker can be overblown. I'm now on the retail banking side but was on the wholesale side so worked with many brokers. It really comes down to finding a loan officer that's professional, has integrity and gets results. I recommend you talk with friends, family, business associates and realtors on who they recommend. Then interview the loan officer you will need to feel comfortable working with them.

I recommend you get pre-approved when you are serious about getting a home. If you are looking at properties now with the intention to buy then get pre-approved now but if you aren't ready then wait.   

  • December 31 2010
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Wayne, I take grave exception with your comment about how great the big banks are at monitoring their unlicensed loan officers - what broker caused Cuomo to file lawsuit in New York and resulted in the new appraisal laws we're facing? Oh, it was a big bank - Washington Mutual.  Why has Bank of America paid hundreds of thousands of dollars to settle various state's lawsuits for "unlawful practices?"

Wells Fargo?  Here's a recent story - Wells Fargo, in an agreement with California's attorney general announced Monday, said it would provide $2 billion worth of loan modifications to nearly 15,000 homeowners.Under the deal, the bank is also paying a total of $32 million to borrowers who lost their homes to foreclosure, according to the AG.

Those big banks are not paying big money out of the goodness or their hearts.

Sorry Wayne - you got me going on this. I'm normally very neutral on the big bank v broker v banker thing but your reply is just perpetuating a serious gap in our lending system - the "compliance departments" of the big banks have not done that great of a job.

Can you name one mortgage broker firm that has caused a LAW to be changed?

I'd love to see a statistic on how many loan officers FAILED the new NMLS requirements...and subsequently got hired by a big bank.
  • December 31 2010
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As a licensed banker in California who also went through all the hoops to get tested and scrutinized by all the new agencies, but I must agree with Michael Mullin, Most of the bigger bank`s employees (federally Chartered banks) are not licensed and are not required to be
  • December 29 2010
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Congratulations on doing the right thing. Buying a home is a great goal to achieve but being financially capable is a must. Since your credit score will improve with time, getting pre approved with in 90 days of your house hunting should be ideal.
Michael.....by not being with a bank you are probably not aware of the scrutiny bank employees go through. Being highly regulated, employees  have to pass many hiring requirements including those you mentioned. Each year all employees must pass test on every facet of mortgage lending regulations.  A bank has a Compliance Dept. that reviews every loan closed and rejected, and the Gov't regulatory agencies do thorough audit's annually of all loan files.  I can assure you bank loan officers do not get a free hall pass.....
  • December 29 2010
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