If you’ve ever wondered why lenders have different interest rates, look no further! The truth is, rates vary in small amounts depending on the cost of creating a loan. Even lenders who work at the same company often have different interest rates. At the end of the day, all home buyers are trying to buy a home and all lenders are trying to close a loan. Let’s break down what costs are factored into giving a borrower a mortgage loan.
The Cost of Creating a Loan
#1 Verification
Every lender will either need to build, buy, or rent a software license that verifies a borrower’s background and other information to see if they qualify for a mortgage loan.
#2 Processing
Next, lenders work with an underwriter or processor to make sure banks are taking good loans that are profitable. They also make sure that payments are being made and on time.
#3 Space
If a mortgage company is in a nice office building in a nice area, they have to cover the cost to rent that space.
#4 Commission
Lenders working from a call center usually offer lower rates but make little commission. This is because their company spends money getting buyer phone numbers which is also then factored into the cost. Lenders referred by a realtor are typically self generating loan officers that offer higher interest rates because they make more commission than call center loan officers. Self generating loan officers also might have an assistant which is factored into the cost.
#5 Company Size
Lastly, a lot of mortgage companies have branch managers, district managers and regional managers under the owners who are shareholders. These people have to get paid from the loans and essentially a borrower’s mortgage payment which is another cost.
Bottom Line
These are all costs the mortgage company has to pay whether a borrower closes a loan or not. If a company has high closing numbers, they will likely offer lower interest rates. If a company has low closing numbers, they will have to cover the costs by offering slightly higher interest rates to maintain profitability. It all depends on how much it costs to operate their company and how much commission the loan officer needs to make.
