The Ramsey Show Highlights - Should You Get A Mortgage From A Bank Or A Mortgage Broker?

Short Summary

Main recommendation: For a small mortgage on a large down payment, consider a credit union or bank that will keep the loan in its own portfolio, because it can avoid the appraisal, survey, and closing costs that conforming loans require. Whether a bank or a mortgage company is the better choice depends on whether the loan will be sold (conforming) or kept (portfolio), since mortgage companies almost always sell their loans right away.

Key Points

• Conforming mortgages (Fannie Mae conventional, FHA, and VA) follow set guidelines so they can be packaged and sold as blocks, a process called securitizing.
• Banks and credit unions can originate conforming loans but can only sell them if they conform to guidelines, and you can almost always predict a conforming loan will eventually be sold.
• Portfolio loans are kept by the lender and can follow whatever guidelines it chooses, such as home equity loans.
• Mortgage companies almost never keep loans; they line up an investor before closing and typically sell the loan within seconds of signing.
• The 2008 housing crash was linked to violations of conforming guidelines and inflated appraisals, which led to more regulation.

Details Worth Noting

• Concrete instructions: For a small loan on a large house, ask your credit union whether it will keep the loan in its portfolio, with a five-year fixed rate, no points, no appraisal, and no closing costs. Frame it as a car-style loan on your home, and check with the lender that it will be kept in-house before agreeing.
• Conforming loans, even small ones, still require an appraisal, a survey, and other processes, which the video says create unnecessary closing costs on a very small loan.
• The example given: a $50,000 loan on a $200,000 house, made possible by a large down payment.
• The video illustrates securitizing with an example: five $200,000 VA loans could be packaged together into a million-dollar block and sold.
• The speaker gives a hypothetical: if you get an FHA loan from Bank of America, don't be surprised if Countrywide or another company owns it just two weeks later, since banks buy and sell these loans easily.
• The speaker says Churchill Mortgage, which the show endorses, typically owns the loan for only about 30 seconds after signing before selling it, so do not expect it to collect your payments.

Bottom Line

Ask whether the lender will keep your loan in-house before you assume a bank, credit union, or mortgage company is the better choice, because a portfolio loan can be cheaper on a small mortgage.