MORTGAGE and mortgage refinance (MMRF) brokers in the United States are professionals. At least, most are. Like in any market, there may be a minority of brokers in the MMRF market too who are unscrupulous.
Mortgage Refinance Broker
As an MMRF loan seeker, you needn’t worry about the good brokers simply because there are good. But there’s no way you can be sure who is good and who is not.
Therefore, you should be on the guard against someone trying to take undue advantage of you. A potential area where MMRF loan takers can be taken for a ride, is the commission you pay to the broker. In this article, we will take quick look at this subject so that you pay what you should pay, and not more.
When does the broker get entitled to payment: As a matter of rule, your broker is paid nothing for advising you or even spending time running between lenders for you.
He or she is not even supposed to be compensated for the costs, real or claimed, incurred in traveling around for you. Even if he finalizes a loan for you and you decline to take it for any reason whatsoever, he still is not supposed to be paid anything. In brief, he is not entitled to any payment by the borrower except at the closure.
What is closure?
You may see as many brokers as you want. You might decline as many offers from them as you want. You pay nothing to anyone until you have finally decided to accept an offer. When everything is decided, there is an across-the-desk meeting between you, the lender, the real estate agent, the MMRF broker who intermediated between you and the lender whose offer you have finally accepted, and others concerned.
At this meeting, everyone signs the dotted line, and payments are made. This is called ‘closure’, and it is during this meeting that you pay your broker.
When to decide the broker’s commission?
This is something that you have to decide at the very first meeting you had with the broker. In fact, this should be decided with every broker you meet, irrespective of whether or not you finally accept the loan offer he brings you. The question now is: how much you should pay the broker?
How much should you pay?
This depends on your credit profile. Lenders compute your credit rating on the basis of your existing debts, your income, the market price of your property, your age, and a host of other factors. If your credit rating is good, you pay the broker less. Conversely, if your credit rating is poor and the broker has yet got a lender willing to lend you, you have to pay the broker more.
The broker’s commission from the customer, i.e., the borrower, varies from 1% to 10% of the loan amount, depending on your credit rating. Since most people in the United States carry some debt in the form of credit card dues, car finance, educational loans, etc., it is rare to find a totally debt-free borrower. However, hypothetically, a totally debt-free person with a stable income and reasonable prospects should get away paying 1% commission only to the broker.
This increases as credit rating decreases. The figure of 10% commission applies to borrowers with really poor credit rating, which means that getting a loan granted by a lender was truly the broker’s feat. So, the thumb rule is: 1% to 10% depending on your credit rating.
How you can know your credit rating?
If you are one of those few totally debt-free persons in the United States and you have a stable income and reasonably good prospects in the job you are doing, you can be sure you have a top credit rating.
If your existing liabilities are small, it is better to clear your debts before applying for an MMRF loan. If that is not possible, try reducing it.
You can then use one of the many resources on the Internet to make rough approximations of your credit rating. You can also ask your broker to get you the rating considered by the bank before granting you a loan.
Brokerage if a business of trust between the broker and the customer, i.e., you. Nevertheless, you should be careful for there are always some bad elements in any brokerage business: so why should the mortgage loan market be an exception?
Know therefore that the broker’s commission varies between 1% and 10% of the loan amount, and that the broker gets entitled to it only at the loan closure stage. Just for your moral assurance, you needn’t feel guilty if the gross amount you pay your broker is small because your loan amount is small and/or your credit rating is excellent.
This is because the broker earns a commission from the lender too.