Mortgage Brokers

Conventional mortgage loans are not insured by a government agency such as FHA, VA or Rural Development Services. Conventional loans are available from several types of lenders including Thrift Institutions, Commercial Banks, Mortgage Companies and Credit Unions. Applying for these loans is done directly through a lender or with a Mortgage Broker.

Brokers arrange transactions rather than lending money directly. In other words, they find a lender for you. Since they have access to several lenders, they can find one who is best suited to your financial situation. Obviously, they are also going to look for the lender who will provide the best financial package to them. They are not obligated to find the best deal for you unless they have contracted with you to act as your agent. Consequently, you should consider contacting more than one broker, just as you should with banks or thrift institutions.

Whether you are dealing with a lender or a broker may not always be clear. Some financial institutions operate as both lenders and brokers. Most brokers' advertisements do not use the word "broker". Make sure to ask if a broker is involved. This is important because brokers are usually paid a fee for their services that may be separate from and in addition to the lender's origination fee. Their compensation may be in the form of "points" paid at closing or as an add-on to your interest rate or both. It is important that you know how the broker is getting paid.

Make sure you understand the rates versus points when receiving quotes. A 6% mortgage with 0 points is a lot different than a 6% loan with 1 or 2 points. A point translates into 1% of the loan amount and is paid as part of the closing costs.

Conventional loans may be conforming or non-conforming. A conforming loan conforms to guidelines established by Freddie Mac and Fannie Mae. If your loan is a conforming loan it will most likely be sold to one of these two agencies. The lender may or may not retain servicing rights. In 2006, the maximum limits for a conforming loan are:

One Family	$417,000
Two Family	$533,850
Three Family	$645,300
Four Family	$810,000

If your mortgage request exceeds these limits your loan is classified as a Jumbo loan. Jumbo loans are not normally insured by the Federal Government so interest rates may be higher.

Private Mortgage Insurance:

On conventional loans, if your down payment is less than 20% you will be required to pay for Private Mortgage Insurance (PMI). This is insurance that protects the LENDER if you default on your loan. It does nothing for you but you have to make the payments. The advantage, of course, is that it allows you to acquire a mortgage with less than 20% down. The following chart provides the information you need to calculate your estimated monthly PMI payment.

Base-to-Loan%	Fixed Rate Loan
Base-to-Loan%	30 Years	15 Years
95.01% to 97%	0.90%	0.79%
90.01% to 95%	0.48%	0.26%
85.01% to 90%	0.52%	0.23%
85% and under	0.32%	0.19%

For example: You purchase a home for $200,000 and put 5% down. That leaves you with a 95% mortgage or $190,000 and you are financing it for 30 years. From the chart above your PMI factor will be 0.78%. Multiply 0.78% times $190,000 and the result is $1,482, your annual payment. Divide this by 12 and your monthly for PMI is $123.50. If your loan qualifications are borderline this could create a problem as the PMI has to be included in your monthly mortgage payment.

Down Payment:

If you are purchasing a home as your primary residence, keep your down payment as low as possible, preferably $0. A mortgage is a liability, not an asset. Any money you use for a down payment provides no investment return. The average price of a home in the United States is above $200,000. A simple 5% down payment is $10,000 and this is in addition to your closing costs which could be another $5000. This $15,000 is gone until you sell your home. There is no guarantee that you would get your money back, particularly if you have to sell in three or four years. Adding on your selling Realtors commission of 6% ($12,000) brings your break even point to $27,000 more than you paid for it.

Keep as much in your pocket as possible.

Mortgage Brokers: