What Should You Watch Out for When Finding a Mortgage Broker?
Whether you are buying your first home or your next home, the person you choose to serve as your mortgage broker will become one of the most important people in your life over the coming weeks. They will be responsible for helping you get the right mortgage product based on your unique needs and situation, and for guiding you through the process of borrowing the funds you need to finance your home.
Because of the role your mortgage broker plays, it is vital that you have complete trust in them to act with your best interests in mind. But unfortunately, while you would think that all mortgage brokers would adhere to a code of ethics and a set of standards, this isn’t always the case.
Luckily, you can reduce your risks of working with a bad mortgage broker if you know what warning signs to watch out for. Here are the top three warning signs to watch for that will tell you that the lender you’re talking to probably isn’t the right one for you.
#1: Promises a Much Lower Interest Rate Than Other Lenders You Have Talked To
Buying a home is one of life’s most expensive experiences, so it’s natural for borrowers to want to save money anywhere they can. When a lender makes promises of substantially lower interest rates compared to all the other lenders you’ve spoken to, their offer can be incredibly attractive.
But the truth is, while variations in interest rates can exist between lenders, the difference usually isn’t significant. Any time a lender is quoting interest rates that are drastically lower than what other lenders are offering, there is usually a catch. Usually, the lender will require you to pay points up front or charge you substantially higher closing costs to get you somewhere close to the rate they quoted you. Either way, you are not getting the savings you think you are, so you will be best served by using another mortgage broker.
#2: Promises a Much Faster Closing
Before a mortgage is finalized, there are several steps that need to be taken and processes completed. As a result, in most cases it takes approximately 30 days to close on a home. But depending on a wide range of variables, it can also be just as likely for the closing to take up to 60 days.
Thus, it can be very attractive for a home buyer when a mortgage broker tells them that they can close within 14 days. After all, they can get into their new home in nearly half the time it takes most other lenders! The problem is, closing any faster than 30 days is usually unrealistic and when a lender claims otherwise, it can be a big red flag that they aren’t being honest. And if they aren’t being honest about the closing schedule, then what else aren’t they being honest about?
#3: Charges Significantly Higher Closing Costs
Closing costs consist of all the fees you will have to pay to finalize on your mortgage, and they can be expensive. In general, closing costs can range anywhere from 2% to 5% of the loan’s value. But as expensive as closing costs are, there are limitations as to how much you should have to pay. So, if you get an offer from a lender and their closing costs are either substantially higher than what other lenders are quoting or higher than 5% of the loan’s value, then that’s a clear warning sign that they should be avoided.
When you’re in the process of comparing mortgage brokers for your home loan, you will receive a lot of quotes and have an overabundance of financial information thrown at you. The truth is, it can all be a little overwhelming, especially because your choice of lender is such an important one.
Being able to identify certain red flags is therefore vital. When interviewing lenders, pay close attention to what they are telling you, so you don’t wind up with a home loan that either falls through or winds up costing you more money than necessary.
