Direct Lenders

Mortgage lenders are many and varied: from savings and loan banks to credit unions and other types of financial institutions. They are called direct lenders if they deal directly with the customer without any type of intermediary, such as a mortgage broker. It is generally assumed that direct lenders offer lower interest rates and fees than a broker, but in some cases this is not true. Brokers handle most of the paperwork for the lender and in exchange they get wholesale prices, which they can in turn pass along to the customer.

Disclosure: another assumption homeowners make is that a direct lender will disclose all pertinent information to them. This is not necessarily so--they are required by law (under the Truth-in-Lending law) to provide certain information, but not by any means all of the information needed for the homeowner to make informed, knowledgeable decisions. Remember to always do your own independent research.

Some tips when dealing with a direct lender:

1. First, do not choose a lender based upon your realtor's or anyone else's recommendations. Unless they are affiliated with the mortgage industry, they are usually not qualified to make such judgments. Do your own research and come to an educated decision.
2. When shopping for a loan, obtain a Good Faith Estimate (GFE) from each separate lender. This is an estimate of the true costs of your loan, including your interest rate, the down payment, points converted into a dollar amount, any attached fees and all closing costs. And after you have chosen a lender and a mortgage loan program, be sure to write down the total lender fees and rate and have the lender sign it.
3. When it comes to your plan, avoid the mortgages with a pre-payment penalty, and try to choose one where some of the closing costs come bundled together. Remember that almost all closing fees are negotiable--and you should question all fees beforehand.
4. One of the most important things is to lock down the interest rate when you feel it is the appropriate time. At what point the rate is locked and the period of time it stays locked should be delineated in the GFE. Otherwise, your rate will "float" and could rise during negotiations and the entire loan process. With an ARM it is just as important to get the margin in writing.
5. Make sure to read everything thoroughly before you sign it, and ask your loan officer any questions you have before closing. This will lessen the chance of surprises coming up about your mortgage payments.
6. For closing, the lender should provide you with an itemized statement of all closing costs. This is a protection offered the homeowner under RESPA, or the Real Estate Settlement Procedures Act. You should also receive a deed of trust, mortgage note, truth-in-lending statement, and a settlement statement.

If you are considering going with a broker, be sure to check out our section on Mortgage Brokers.