Mortgage Brokers – Friend or Foe?

March 28, 2007 by

Once you’ve identified a property to purchase, you need to start thinking about financing. If you are looking at single-family homes or properties with four units or less, a good local lender may be your best choice. Banks are generally good as well, but they often tend to offer shorter term loans and or higher interest rates on investment properties. If you have a fairly typical property in an area with banks nearby, make a simple phone call to see what they have to offer.

In my situation when I purchased my first investment property in Las Vegas, I used a mortgage broker which was extremely helpful. Mortgage brokers generally charge 1% of the loan amount to help locate a quality funding source for you. My new mortgage broker charged a $500 fee upfront and then worked on getting a point or two on the back-end with whichever lending house or bank he ended up working with.

Now most mortgage brokers are there to help you but I must warn you – from past experience – not all brokers are going to be honest. Mortgage brokers are your typical salesperson with specific incentives to make more money. They may charge you a small fee upfront but not necessarily find the best loan program for you.

For example, say there were two banks that your broker was deciding between for your loan program. The first bank offered a 6.5% 30 year fixed loan with a bonus of $5,000 for the broker. The second Bank offered a 6.25% 30 year fixed loan with no bonus. Which of the two do you think you’re mortgage broker will offer you?

The best solution is to find a broker that is recommended to you by a friend or family member. Somebody that you can trust and not have to question their loan programs. Regardless, if I were you I would still ask to see the details and specifics on each loan program available for you. These mortgage brokers are legally required to show you all commissions or monies going in or out of the deal. They of course are not going to offer this to you upfront but it’s there if you wish to ask for it.

Despite my bad experience with one broker doesn’t mean the majority of them are evil. It’s just that one or two that gives them a bad name. Overall I highly recommend using a trusted and well established mortgage broker versus trying to work with a bank or lending house directly. They basically do all the leg work for a small fee and have access to numerous sources of information as to which loan program would be the best for your situation.

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12 Responses to “Mortgage Brokers – Friend or Foe?”

  1. Andrew on May 24th, 2007 8:49 pm

    Mortgage brokers are really the way to have a safeguard in preforeclosures.
    For some reason I thought that you would disapprove of mortgage brokers. You hit the nail on the head though when you said the main interest to many brokers is the money in their wallet not the value to the client. The way to build a business is by referrals. We strongly believe that a team/ relationship is formed when working with people.
    You are giving your readers very sound advice. Congratulations on giving your readers the information and respect they deserve.

  2. Real Estate Guru on May 24th, 2007 9:26 pm

    Thanks Andrew. There are so many brokers out there willing to honestly help you and make money for themselves which is how it should be. It’s the ones who just look for the larger commissions and pretend you got a good deal that are evil. I appreciate you stopping by to comment.

    ~David

  3. Carin on September 19th, 2007 11:43 am

    It’s a good idea to compare term life insurance vs. mortgage insurance from banks. Term life policies come in amounts that can cover your mortgage, but sometimes at a significantly less premium. Term life allows you to name the beneficiary, and allows more control over how the money is spent.

  4. Options of investment on October 3rd, 2008 12:24 pm

    This is a great option of investment and mortgaging as an industry still needs to stabilise.
    Investing Options

  5. mortgage reduction on October 14th, 2008 5:23 pm

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  6. MORTGAGES on December 19th, 2008 10:33 am

    If you are in the process of refinancing your home loan you might consider using a mortgage refinancing broker to help you find the best loan offer. Mortgage brokers are an excellent resource for locating competitive mortgage refinancing offers as long as you understand how retail mortgage loans work. Brokers often significantly mark up the interest rates on loan offers; if you are able to recognize this markup you can easily avoid paying it. Here are several tips to save you money when mortgage refinancing with a broker.

    The Mortgage Refinancing Market

    The retail mortgage market is made up of mortgage companies and brokers that refer borrowers to wholesale lenders for a commission. There are also banks and broker- banks that write their own mortgages; however, due to loopholes in mortgage refinancing disclosure laws that protect homeowners in the United States, you should never refinance your mortgage with a bank or broker-bank. For the purpose of this discussion we will focus on mortgage refinancing with mortgage brokers which act as third party vendors for wholesale mortgage lenders.

    Mortgage Refinancing With a Broker

    Mortgage brokers that do not close on home loans in their own names are excellent time-saving resources for mortgage refinancing. This is especially true for special needs borrowers, like homeowners with poor credit. The first question you should ask every broker you consider is “Do you close on the loan in your own name?” If the answer to this question is “Yes” or the mortgage refinancing broker refuses to answer, you know that you are dealing with a broker-bank and should scratch this person off your list. Never refinance your mortgage with a bank or a bank pretending to be a mortgage broker.

    What to Tell Your Broker When Mortgage Refinancing

    When you have found a broker that you are certain is not a bank masquerading as a mortgage broker, tell the broker you will pay mortgage refinancing origination fees and closing costs, but will not pay Yield Spread Premium (YSP) of any kind. YSP is the markup mortgage brokers tack onto the interest rate your wholesale mortgage refinancing lender qualified you for. Mortgage brokers do this to receive an additional bonus for overcharging you.

    Additional Resources for Mortgage Refinancing Information

    You can learn more about mortgage refinancing with a broker, including common mistakes to avoid by registering for a free mortgage refinancing guidebook.

  7. Atlanta real estate on March 1st, 2009 5:55 am

    Mortgage brokers can be both, your friends, or your foes. It depends on the person, just like any other type of industry. There are good ones and then there are crooks.

  8. brewer caldwell on March 6th, 2009 3:14 pm

    I think you just have to find the right fit for your personality. I don’t think brokers are evil at all. If anything they want to help you.

  9. John Beck Tax Foreclosure on June 24th, 2009 9:04 pm

    Hey there! Great post! I was finding such material for a long time. Your post led me to gain some more attention regarding Foreclosure, as I am in this business and looking around for potential properties.

  10. Real Estate Taxi on June 30th, 2009 5:14 pm

    Mortgage brokers whom are extremely value, mainly because they can make or break your deal. If the broker can advise you without his own pocket in mind they can be considered a friend. If they push you in a normally unadvised decision then they are foe.

    Walt

  11. mortgage loan modification on August 13th, 2009 1:50 pm

    I venture to say that anyone who is still an independent mortgage broker and still making a decent living during the recession has almost assuredly built his/her book of business upon treating clients fairly. Without a very large referral base it would be almost impossible to survive in this market.

  12. dzoyce on November 23rd, 2010 11:30 pm

    i just have some suggestion here.. you guys better try foreclosure this is very cheap i got here my source just CLICK HERE for more info
    It’s free to join and they actually own their homes and not just a broker.

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