Buying a home is a big decision and you do not want to make a mistake while you are home shopping. That’s why lots of people turn to mortgage brokers to help them through the process of finding a loan. In order to help you avoid being taken advantage of during the process, here are five money savings tips that your mortgage broker doesn’t want you to know.
1. They can’t guarantee you’ll pay the lowest rates
Finding the best loan for your home requires that you take the time to shop around for the best rates. Mortgage brokers will tell you that they can find you the lowest rate on your loan but that is not necessarily true. Mortgage brokers only deal with a select number of lenders. Shopping for the loan yourself gives you the freedom to search for the best loan with the lowest rates and to accept that loan.
2. You don’t need a mortgage broker to get a loan
You can often get the best deal on a home loan by eliminating the middleman and contacting the lender yourself. Mortgage brokers are middlemen that help in the loan closing process. You can save money on your mortgage broker by personally dealing with the loan officer at your credit union or bank. This way you are in complete control of the loan process from start to finish.
3. If you’re in a hurry, there are better options available
A mortgage broker is not the best bet for individuals that are looking to close on their loan quickly. It can take an extra few weeks for a mortgage broker to get all of the required documents and files. It’s much faster to close with a financial institution if you deal with them directly. This way there is no information that needs to be relayed back and forth, and you can put all of your energy and efforts into closing on the loan much faster.
4. Mortgage brokers are expensive
While mortgage brokers can be an asset to employ, their services do not come cheaply; a good mortgage broker can easily cost you a few thousand dollars to close your loan. (Note, though, that this is not necessarily always the case. In countries such as Australia, most mortgage brokers do not charge a single cent for sourcing the home loans since they are remunerated directly by the lenders). These fees are often added into your loan amount when the time comes to settle your loan. If you are pretty knowledgeable about real estate, you can perform many of the same functions as a broker and skip the fees.
5. You could get ripped off
Because there are no uniform standards for becoming a mortgage broker, there are some unscrupulous people in this field. Dubious brokers are more often than not in the field for some quick cash and really aren’t really interested in helping their customer, who often end up with bad loan terms from shady lenders that package and resell their loans.
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I’ve never used a broker for any mortgage or re-fi I’ve done. I’ve always worked directly with the lender. Between having a good real estate agent, working with a reputable, big-name lender, and spending time to understand the process, I had no need for a broker.
I agree that working directly with a lender is the best way to go. But I disagree with Money Beagle that a “big-name lender” is your best choice. Many local lenders are providing great rates and service.
BTW, tip #5 is not quite accurate. Recent laws are requiring all loan originators (except for certain nonprofit organizations) to be licensed. You can search for licensing information at the National Mortgage License Registry website: http://www.nmlsconsumeraccess.org/.
In addition, the new Good Faith Estimate and HUD-1 disclosures require mortgage brokers to show all fees they collection from a borrower. In the old days, the broker’s profit was held in the (not disclosed) yield spread premium.
It’s not that crooked people won’t find their way around the laws, They will. But if you do your due-diligence you have a little more information to help you.
The biggest risk is definitely #5 Getting Ripped Off.
Mortgage brokers used to be able to collect Yield Spread Premium. This means the broker got way higher comissions for putting people in the worst loans. That’s why so many people got stuck in subprime loans before 2008, even though they were qualified for A or Alt A loans.
After almost getting ripped off by a mortgage broker once, I walked into Home Savings and got my own loan. I got a great loan, which I still have, and the process was way more honest and transparent.
i enjoy shopping for mortgage loans so I always tried to find my own. Since I have a good FICO score, I use that to negotiate the best rate. I refinanced about 8 years ago and was able to get a below market rate. Then I negotiated on the costs of refinancing to get rid of the garbage fees.
Hey krantcents, how do you get rid of the garbage fees?
I used a car buying strategy for getting my home loan. I shopped on Bankrate, then called the bank to get the best possible rate. Then I called 3 more banks and asked if they would beat the good rate I had. I did this about 4 times until I couldn’t get my loan rate any lower! I was very happy!
Very enlightening thanks, I do think your trusty visitors could quite possibly want a great deal more writing like that carry on the good content.
While I love this forum I can say that this article is dead wrong. Having been on all sides of the mortgage industry for the last 18 years I can tell you this.
A reputable mortgage broker will ALWAYS outperform the big banks, whether you’re talking interest rate availability, fees, service to get the job done, etc. The banks have horrific customer service, and going “directly to the lender” doesn’t get you anything, even if you’ve banked there for decades.
The article claims brokers are more expensive. Wrong, brokers can undercut any bank out there if they want to. The article claims it takes longer to close a transaction with a broker. Wrong. Banks take forever these days to process anything, brokers can close a transaction in two weeks if needed.
The article says you could get ripped off, as there are no uniform standards for mortgage brokers. Hello, earth to author, you ever hear of the financial reform that took place in this country. As a mortgage broker one must be licensed not only in the state they conduct business, but also through the national regstry (NMLS). Licensed, bonded, net worth requirements, credit requirements, and meanwhile the loan officer sitting at your local bank is NOT licensed – they only require a “registration” number.
I’ll leave with this: The big banks who you refer to are taking up front application/appraisal fees knowing that most of those who apply will NOT be issued approvals. The big banks credit overlay what they want to close versus what they COULD close. The big banks want a fee from everyone regardless of their ability to qualify, and the big banks’ employees can’t even get financing because the process is so compromised and time consuming.
This is a great website with lots of great dialogue, but “guest” written articles that are dead wrong top to bottom need to be scrutinized a bit more. People need to realize that the scumbags of the industry are gone and have been for several years now. The solid performers remain, and it’s a better situation currently. But remember, the guy who can’t hack it in brokerage is probably sitting at a desk at “your local bank” as they don’t require the knowledge, licensing, net worth, credit requirements, bonding, etc, that it takes to be licensed in mortgage brokerage/banking.
There is one other item not mentioned in the article – something that both the brokers and bankers don’t want borrowers to know.
Even with the low interest rates available today, more than 50% of most monthly payments go towards interest.
Amortization schedules skew interest to the front of the loan, and people either mover or refinance long before the schedule evens out.
You’re right. Maybe that’s why a banker once said to me that if people could borrow for longer terms, they should do it (provided they are living in their long-term or forever home). The interest is always all up front, and the last years you are paying back mostly principal, but in dollars that have been eroded by inflation.
Spot on write-up. Thanks for the information!
A professional and an experienced mortgage agent/broker can give you stress-free mind and happy living. Choosing mortgage broker for your all mortgage needs is the perfect choice!
Very good tips!