There are several benefits when going through a mortgage broker for your home mortgage, but beware of the techniques they use to make a commission from
the loan they sell you. Most loan officers work off 100% commission!
Lets start off with the benefits of a mortgage broker, first they can submit your loan through many different lenders to get you approved with pulling only one credit report. They usually have the loan guideline qualifications sheets for each different lender. This tells them what interest rate and how much of a loan they can get you from each different lender based on your credit file. Second, they can choose the right lender that fits your needs at the best possible rate. Sounds like a good way to go, or does it?
Lets now look at how the loan officer and the mortgage company make their money. First they have a standard commission which is a certain percentage rate of the primary loan amount. This can range up to 5-7% or more depending on the current federal guidelines and that's not including taxes and closing cost! Second, they have a term called point spread. For example, If the loan officer is able to get you a 5% loan he may try to quote you at 6% or even 7% if he thinks he can sell you the higher rate. The reason for this is that the bank will pay him an additional commission on every additional 1/4 percentage point that he sells to you that is within federal lending laws (it is legal).
Finally, lets explain how a loan officer sells you a higher rate. The ways he does this to sell you the rate is to say 1) Your credit is not so good. 2) You have late payments on your current mortgage. 3) Or, if you currently have a higher rate mortgage at 8% he may try to give you 6.5% even though you can qualify for 5.5%(you believe he's getting you a good deal). 4) Finally, he may have combined some credit cards into your mortgage and he'll come back with the famous line of "We'll I am saving you X amount of dollars per month.
Fortunately there are ways to get a fair rate and a decrease on commission from a mortgage broker. First, know your credit score. Second, apply with several different mortgage companies and let them compete. Third, after you get a fair rate quote, (Wait until after the rate quote or they may try to compensate their lost fee by raising the interest rate.) tell them you want the commission lowered. I personally would not pay over 3% in commissions plus closing cost or you are being taken advantage of. Remember, do your research. If you think you can qualify with a bank, than go for it and avoid the mortgage broker fees!
For more information visit on brokerage fees please visit the Federal Trade Commission at ftc.gov.
Beware of Illegal Mortgage Referral Fees.
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