As a young, first time homebuyer, the process of purchasing a new home can be daunting. Most homebuyers use a mortgage broker to manage the purchasing process for you. He or she will be the one who applies for you loans with various lenders, attempt to find you the lowest interest rates, negotiates the terms and conditions, and helps you get approved for a home loan.
But using a mortgage broker can be a double-edged sword. On one hand, they’re supposed to be working for you by easing the stress involved in buying a home and ensuring you get the best deal all the way around. On the other hand, they know a lot about the real estate market and how it works and are in a position to play many sides, some of which aren’t in your favor.
For example, since they work with lenders, brokers tend to work behind the scenes with them, such as including provisions deep within the loan agreement that go in the lenders favor. If you genuinely want to get the best deal on your first home purchase, you need to know how to recognize when your mortgage broker is playing games. Below are a few mortgage broker tricks to watch out for.
1. Willingness to Bend the Rules and Change Numbers
You should be very wary about any mortgage broker that offers to bend the rules or manipulate numbers to secure you a home loan. No matter how kind-hearted they sound or how warm their smile is, you better believe nothing good will come from it, and they know it. Even if you’re in a desperate financial predicament and are willing to do anything for a loan, you’ll find yourself in a worse condition later on if you fall for this.
These backdoor tactics will lead an inherently flawed loan supported by faulty information. You won’t be aware of this fact until you can no longer afford to pay the loan, resulting in greater financial turmoil later on, and may lead to foreclosure. A mortgage broker has nothing to lose and everything to gain, namely a commision if they get you into a bad home loan. A broker’s only concern is getting you approved for a mortgage loan, so they get their cut. Whatever happens after that is your problem.
2. The Broker Leaves Loan Rates Unlocked
A loan lock is a guarantee to the borrower that the mortgage lender will provide a loan with a specified rate of interest upon closing. In most cases, there is a lag in the time between a borrower submits their application and when the official terms of the loan are locked.
Some mortgage brokers will tell potential homebuyers that the rates quoted in their contract may change due to market fluctuations during this lag time. This means that as market prices rise, your loan rates will follow the upward trend; and as market prices fall, they will follow the downward direction. Brokers like to take advantage of this and take in extra profit on the side without you knowing about it.
You can prevent this by keeping a close watch on the market before and after locking in your loan rate. Furthermore, make your loan provider aware that you’re doing this.
As a first time buyer, it can quickly get overwhelming when trying to understand the market and how to go about finding the right home for you.
3. They Don’t Seem Too Concerned About How Much Money You Bring Home
Countries like Britain, Australia, and the United States have had their housing markets hit hard over the past decade or so, with one of the primary reasons being homeowners couldn’t afford to pay their mortgages at some point. The fault lay on the buyers, brokers, and lenders, for all parties knew well the buyer was getting themselves into a potential financial pinch. Nevertheless, all parties involved allowed the home loan to happen.
On average, your mortgage rate should never exceed 30 percent of your gross monthly income. Even if a new and naive homebuyer doesn’t know this (though instinctively they should), every mortgage broker and loan officer knows this like they know the back of their hand.
And despite the temptation to jump on any seemingly sweet deal that comes along, you should think about your future and the future of your family and resist. Additionally, if the broker seems not to care much whether you might end up foreclosing or not, find another mortgage broker to deal with. If you’re unsure whether or not you’re putting yourself out, check around online and compare to see if it’s affordable.
4. The Good ‘Ol Bait and Switch
One of the oldest tricks in the book, the bait and switch is still a popular scam where the mortgage broker advertises “low-ball” prices that they never intended on honoring. Their goal is to draw you in with an amazing deal then, when it’s almost near time to close the deal, they up and tell you something like, “I’m sorry but the lender couldn’t find a way to get you qualified for the price quoted before.”
Other famously known excuses are:
“After the lender ran a credit check, come to find out your credit score disqualifies you for the price I originally told you.”
“You won’t believe but the property value recently dropped. I know it’s not good news but these things happen.”
If you’re a new potential homebuyer just entering the market, it’s important to understand that the real estate market is not a fair one. Knowledge and understanding of the real estate market will give you an upper hand, so do your research and don’t pay too much for your first home.