Most people think that dealing with mortgage brokers is the same as dealing with other financial professionals, such as bankers, fund managers, and so on.
The reality, however, is that mortgage brokers operate under very different rules than other types of financial professionals. This is due to the unique nature of their business.
If you are planning to do business with a mortgage broker, it’s important that you understand how these rules can affect your experience and help you avoid being scammed by one of them.
Here are some tips on how mortgage brokers rip you off and how you can avoid it.
Who Are Mortgage Brokers?
Mortgage brokers are people who work for banks, credit unions, or other financial institutions to process mortgages.
Mortgage brokers are not regulated by the federal government, though some states regulate them through their departments of real estate or banking.
Mortgage brokers often work with banks to process loans, but they can also work independently. Some mortgage brokers charge fees while others do not. There are many different types of mortgages available on market including:
- Fixed-rate mortgages
- Adjustable rate mortgages (ARMs)
- Hybrid ARMs
- Interest only loans
- Jumbo mortgages
Each type of mortgage comes with its own set of pros and cons, so it’s important to research which one would be best for your financial situation.
How Mortgage Brokers Rip You Off: The Ways
Mortgage brokers rip you off in the following ways:
- Funding Fees – The funding fee is the fee paid to a mortgage broker who facilitates the lending process.
- Points – A point is equal to 1% of the loan amount. Mortgage brokers often charge points in order to incentivize borrowers to choose them over other lenders.
- Closing Costs – These fees, which are typically paid when you close on your loan, cover many of the expenses associated with buying or refinancing a home.
- Real Estate Agent Commissions – Some buyers opt to use a real estate agent rather than a mortgage broker to buy their new home because they believe that agents have more experience or negotiating power. One major disadvantage to using an agent is that they usually get commissions from both the seller and buyer of a house. In some cases, this commission can be as high as 6%.
How You Can Avoid It
If you are a first-time homebuyer, chances are you have no idea what a mortgage broker is. That is probably for the best.
These middlemen charge big fees for their services, often without providing the same protections that a bank would.
Mortgage brokers will almost always encourage you to go with the most expensive loan option, so they can collect more in fees.
In some cases, mortgage brokers may even steer borrowers towards loans with terms that make it difficult or impossible to refinance later on.
To avoid getting ripped off by a mortgage broker when buying your next home, be sure to do your research before signing any paperwork. You can avoid it by:
1. Choosing An Honest Broker
A mortgage broker is an individual who arranges mortgages for borrowers. The idea is that brokers have access to a wide variety of lenders, so they are able to find the best deals.
However, not all brokers are honest, which is why it is important to do your homework before you decide on one.
- Check with the Better Business Bureau and Consumer Affairs for complaints against brokers in your area.
- Ask friends and family members for referrals.
- Request a list of previous customers and call them to ask about their experience.
- Ask the broker how many years he or she has been in business.
- And be sure to read the contract carefully before signing anything.
2. Always Checking Their Reviews
When you’re looking for a mortgage broker, don’t just go with the first one you find. Take the time to research each one you are interested in by reading reviews on their company website, checking them out on sites like Yelp, and talking to current clients. This way, when you do choose a broker, it will be an informed decision.
3. Don’t Be Afraid To Ask For Your Money Back If You Don’t Get What You Asked For
When buying a new home, you should never pay until the deal is finalized. If they are asking you to wire them money before the inspection is done or any other part of the process, don’t be afraid to ask for your money back.
To avoid getting scammed by a broker, stay away from brokers that ask you to wire them money upfront before an inspection has been done or anything else has been finalized.
Be sure that when going through the process of getting a mortgage loan, work with someone who will guide you in every step as well as provide transparency in pricing and terms so that there are no surprises.
Also Check: Why Homeowners Insurance Is Important
Most mortgage brokers have a fiduciary responsibility to act in their client’s best interests, but this is not always the case. In fact, some brokers have been known to increase the cost of a loan or charge for unnecessary services.
Regardless of whether you are dealing with an ethical mortgage broker, there are still steps you can take to protect yourself against fraud. The first thing you should do is make sure that your broker discloses all relevant information about any products they sell.