Is Your Mortgage Broker Ripping You Off?Warning Signs That You're Being Ripped Off On Your Mortgage
Buying your first home or just your first real estate property is a huge decision.
It will probably be one of the biggest investments that you’ll make in your life.
Many first time home buyers don’t have enough cash to fully pay for the purchase.
This is why you’ll be looking into getting a mortgage for your first real estate investment.
Since you probably are not yet familiar with what a mortgage is and what it requires, you’ll be seeking the help of professionals who are experts in such an affair.
Among these professionals are mortgage brokers. What they basically do is find the best mortgage that suits your needs (for a fee of course).
Well, that should be the case if they’re doing their jobs properly and not actually ripping you off.
Indeed, while mortgage broker is a licensed profession, there are still bad eggs that work within the industry. I’m not saying that all mortgage brokers are out to rip off their clients.
There are good and well-mannered mortgage brokers out there.
It’s just that, one bad player can turn your whole real estate investing experience sour.
This is why it’s helpful to know the signs that your mortgage broker might be ripping you off.
And that’s precisely what we’ll be talking about in this article.
Together, let’s find out how your mortgage broker might be ripping you off (if they indeed are ripping you off).
What are the warning signs?
What can you do to avoid these “bad” mortgage brokers?
Read on to find out!
Who is a Mortgage Broker?
Before we talk about the signs that your mortgage broker might be ripping your off, let’s get to know first who they are.
A mortgage broker is a licensed professional who acts as a link between a borrower and a mortgage lender.
They aim to connect their client (the borrower) with a lender as well as find the best mortgage deal according to their client’s financial situation.
Do note that they do not provide the funding for the mortgage.
Rather, they match a borrower with someone who can. Most mortgage brokers also offer additional services such as taking care of the necessary paperwork to process the mortgage approval.
Mortgage brokers are paid a fee for their services, usually in the form of a commission.
As to who pays the fee, it could be the borrower, the lender, or both of them. Do note that this fee usually only gets paid once the mortgage has been closed. So be wary if you’re mortgage broker is already asking for fees even if the mortgage is yet to be closed.
While you technically can proceed with a mortgage without the aid of a mortgage broker, one cannot deny the convenience that their services provide.
The additional expense might be just worth it if you’re mortgage broker is doing their job properly.
But if they’re out to rip you off instead…
Signs that You’re Being Ripped Off by Your Mortgage Broker (and How to Deal With Them)
Getting a mortgage will be one of the biggest financial commitments that you’ll make.
That’s what makes the experience delicate and crucial.
However, with the amount of money involved in real estate (including mortgages), there’s a very real chance that you may get ripped off.
For example, you may be tricked into getting a low-interest loan that has lots of hidden charges, resulting in you actually paying more.
Now, it is ultimately your responsibility to protect yourself from such bad actors. Here are some signs to look out for when your suspect that you’re mortgage broker is ripping you off:
Your mortgage broker doesn’t have a license
First and foremost, know that mortgage broker is a licensed profession. So if your mortgage broker doesn’t have a license, that is already a warning sign for you.
Be sure to check if your mortgage broker has the necessary license and permits.
Sure, someone who doesn’t have a license might do a better job than someone with a license, but that’s rarely the case. And it’s usually safer to deal with a mortgage broker that has the proper license.
Your mortgage broker is insisting you get a loan that you cannot afford
Mortgage brokers usually get a percentage of the mortgage amount as their commission.
This can tempt bad actors to have you get a loan amount that you may not be able to afford. The higher the loan amount, the higher their commission will be after all.
If your mortgage broker is pushing you to get a loan amount that is in excess of what you need, they may be putting their self-interest ahead of yours. They may be trying to get more money from you.
You should know how much you’ll need to avoid this. Just because you “can” get higher funding doesn’t mean that you “should” get it.
A well-intentioned broker will know that it’s their job to get you a loan deal that you can actually pay back. Be firm and be clear with the amount that you need.
Your mortgage broker is promising you that you’re going to get approved 100% (even before the closing of the mortgage)
Even if you comply with all the requirements that a mortgage asks of you, there is no guarantee that you’ll get approved.
The final say is with the lender after all. They may choose not to approve your mortgage application even if you tick all the boxes.
It’s unfair, yes, but it can happen. So if your mortgage broker is saying that they can guarantee that your mortgage application gets approved, you’re probably being scammed.
What’s likely to happen is they will “encourage” you to apply for different funding with different lenders.
Of course, this service of theirs is not for free so they will charge you for all of your mortgage applications. And worse, even if they guaranteed you 100% approval, you may still end up not getting approved for any of your applications.
An honest mortgage broker knows that they can only help you get the best deal for you.
However, they cannot promise that you’ll get approved 100% until the close of the mortgage.
If your mortgage broker is promising you the impossible, you may want to look for another one.
Your mortgage broker is requesting (or demanding) payment even if the mortgage is not yet closed
Mortgage brokers will get a commission for every mortgage that they help close.
Sometimes, this commission can come from you. It could be a fixed fee, but oftentimes, it’s a percentage of the loan amount. They usually get paid this commission at the of the mortgage process.
Sometimes you may need to pay a certain amount for the process to begin.
That’s not an issue… yet. If your mortgage broker is asking for payment/s between the beginning and the end of the mortgage process, there’s a huge probability that they are ripping you off.
It’s even more alarming if your mortgage broker is asking you for thousands of dollars.
You may refuse to make these payments and remind your mortgage broker about the terms you both agreed with.
If your mortgage broker still insists on getting paid before the close of the mortgage, you may want to look for another broker.
Your mortgage broker is charging you fees that were not previously agreed upon
Mortgage brokers often get paid by you (if ever) in the form of a commission.
They may sometimes charge a small fee at the beginning of the mortgage process.
Some may add fees for the extra services that they provide. This is all good if these additional fees were agreed upon by you and the mortgage brokers.
However, if your mortgage broker is charging you fees that are not in the agreement, they probably are ripping you off.
Your mortgage broker is effectively making changes to the agreement without your consent. Would you want to deal with a person like that?
If you notice that your mortgage broker is charging you extra fees, consult your agreement with them.
Insist that such fees are not included in the agreement. If your mortgage broker still insists, you may want to deal with another broker.
Your mortgage broker refuses to provide you with vital information (even if you ask for them)
Information is an important asset when it comes to mortgages. So if your mortgage is withholding vital information from you, they are probably trying to rip you off.
They are not acting in your best interest.
For example, a mortgage broker may only provide you with information about a mortgage’s very low-interest rate.
That makes the mortgage very attractive, right? But what your broker doesn’t tell you is that the mortgage has excessive additional fees.
Also, in exchange for the lower interest rate, there is a high prepayment penalty. Overall, such a mortgage can become more costly than a mortgage rate with a higher interest rate.
To protect yourself, you may want to do your own research on your loan options.
Just because you’re employing the services of a mortgage broker doesn’t mean that you don’t have to practice due diligence.
This can help you confirm that the information that your mortgage broker is providing you with is accurate and complete.
The bait and switch (low-interest rate to hook you, high-interest rate when the mortgage closes)
This is more on the lender rather than the mortgage broker. A bait-and-switch occurs when the interest rate promised to you during the application changes when the mortgage closes.
Usually, the interest rate is higher at the time of closing. This is one of the common ways that borrowers get taken advantage of when applying for a mortgage.
While a change in interest may only be a 1% increase, it can still result in tremendous additional costs.
We’re talking about mortgages here after all.
They can get as high as thousands, even millions of dollars.
Some lenders may advertise a very low mortgage rate but with a catch – the lock period only last for a short amount of time.
For example, the lock period may only be 15 days. Rarely does a mortgage close within 15 days.
To somewhat counter this, check if you have the option to lock the interest rate at the beginning of the mortgage process.
If you do, you may want to exercise it. Locking the interest rate means that it will not increase until the mortgage closes.
If you do not have the option, you may want to consider dealing with another lender.
The convenience that the services of a mortgage broker provide you with is undeniable.
However, that doesn’t mean that you shouldn’t practice due diligence when dealing with them.
Some mortgage brokers are out there to prey on gullible and vulnerable borrowers. Make sure that you deal with a mortgage broker that you can trust.
If you see any of the signs above, be vigilant. Try to get out of the deal as quickly as you can.
Be involved in every step of the process. Ask your mortgage broker questions if you don’t understand something. Do your own research.
This will all help you protect yourself from mortgage brokers who are out there to rip you off.
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Stanford University "Descriptions of Various Mortgage Fraud Schemes Charged in EDCA" Page 1 - 8 . October 18, 2022