Upfront
Mortgage Broker
YOU
SHOULD SHOP FOR A BROKER, NOT A MORTGAGE
When
you deal with a Upfront
Mortgage Broker, your major focus should shift from
shopping the price of the mortgage to shopping for a broker. Once retained, the
Upfront Mortgage Broker will shop the market for you. Brokers can shop lenders
far better than you, among other reasons, because they are in continuing contact
with many lenders.
DON'T
BE DECEIVED BY MORTGAGE PRICE QUOTES
You
can ask for a mortgage price quote on the day you interview the Upfront Mortgage
Broker, but don't base any decisions on it. The price quote you get from an
Upfront Mortgage Broker is unlikely to be the best one you hear, because it will
be an honest quote. Honest brokers can't compete with "sunshine blowers" who
ensnare consumers by quoting prices they cannot actually deliver.
By the time you lock with a sunshine blower, the lower price will have evolved
into a higher price. They have a dozen tricks they can use to raise the price
once they have you on the hook.
Keep in mind as well that prices can change every day, and even within the day,
so the price quoted, even if honest, will reflect the market only at that point
in time. What matters is the price at the time you lock. The Upfront
Mortgage
Broker will give you the best wholesale price she can find at that time.
PRICING THE
UPFRONT MORTGAGE BROKER'S
SERVICES
For
their services, Upfront Mortgage Brokers charge a fee that is negotiated at the
beginning. Once set, it won't be changed. You are protected against all the
tricks of the mortgage broker trade.
When
borrowers deal with conventional (non-Upfront Mortgage Broker) brokers, they
usually are not aware of the broker's fee at the beginning because the fee is
included in the quoted price. The fee is implicit, not explicit, and the broker
is not bound by it. Hence, from the day of the initial price quote to the day
the loan closes, you must be on your guard.
The Upfront Mortgage Broker may price in any manner: a fixed dollar amount, a
percent of the loan, an hourly charge for the broker's time, or a combination of
these. Most brokers, however, charge a percent of the loan amount.
The
Upfront
Mortgage Broker's fee will typically be a significant 4-figure Upfront
Mortgage Broker. You shouldn't let that faze you. For one thing, the Upfront
Mortgage Broker is going to pass through directly to you the wholesale rates
received from lenders. These rates typically are about 3/8% below the retail
rates quoted by lenders. This is the equivalent of an upfront charge of about
1.5 points, or 1.5% of the loan amount. In many if not most cases, this saving
will completely cover the Upfront Mortgage Broker's fee. Furthermore, the
Upfront Mortgage Broker can save you a lot of money in other ways.
Bear
in mind that a one-point fee is $5,000 on a $500,000 loan but only $500 on a
$50,000 loan. Hence, if the Upfront Mortgage Broker's fee is expressed in
points, expect it to be higher on smaller loans. You should also expect to pay
more if the Upfront Mortgage Broker anticipates that you will be a "tough case"
-- for example, you have credit problems that must be cleared up or you can't
document your finances.
OTHER
FACTORS IN SELECTING AN UPFRONT MORTGAGE BROKER
In
selecting a Upfront Mortgage Broker, price is not the only consideration -
anymore than it is in selecting a physician, a lawyer or an architect. You
should feel free to query the broker about qualifications and experience. If
their price seems high, ask why they consider their services to be worth that
much. Broker fees (all brokers, not Upfront Mortgage Brokers) average about 2%
of loan amounts, though it is smaller on large loans and higher on smaller
loans.
It's also good
to have referrals but these are not easy to come by in the home loan market,
except from real estate sales agents. Sales agents select their brokers largely
for their reliability. A Upfront Mortgage Broker referred by a sales agent
would be a good bet. Even if the referred broker is not a Upfront Mortgage
Broker, the broker might deal with you on Upfront Mortgage Broker terms.
BE
PREPARED
Upfront Mortgage Brokers may want to have information about the transaction
before quoting a price. The information may be provided in an interview, a
questionnaire, or in some other way. Borrowers can facilitate the process by
arming themselves beforehand with basic information about the deal.
If they have purchased or contracted to purchase a house, they should bring the
documents evidencing the purchase. If they are refinancing, they should bring
information on the current status of the existing mortgage, including the loan
balance. In both cases, they should bring information on current income from
all sources, total available cash, and all current debts including the balance
and payment.
Upfront consumers meet their obligation under a rate lock.
When a lender locks the loan, both parties are committed. The lender is
committed to delivering the loan even if interest rates jump. The borrower is
committed even if rates drop. A borrower who wants to benefit from a lower rate
while retaining protection against a higher rate needs to negotiate a
“float-down”, as opposed to a lock. A float-down will cost a little more.
CONVERTING A MORTGAGE BROKER INTO A UPFRONT MORTGAGE BROKER FOR YOUR DEAL
It will be awhile before I have a list of
Upfront Mortgage Brokers
in every state. Until then, you can copy the
Upfront Mortgage Broker Commitment
from this web site, and ask the brokers you approach if they are willing to do
business with you in this way. They are unlikely to say “no”, especially if
they realize that you fully appreciate the value that brokers provide and
BROKER COMPENSATION
The total
compensation to [Name of Upfront Mortgage Broker], including any rebates from
the lender, will be:_____________
A separate
processing fee will be:____________
Signature of
the Upfront Mortgage Broker Signature of
borrower
_______________ __________________
Date: Date:
Mortgage Glossary6
