Mortgage brokers profit off of the loans they broker based on several factors, so it is up to you to make sure the loan you are applying for is best for YOU, rather than the loan that offers the highest income potential for your broker. There are several ways to do this:
First, the simple rule of commission holds as true for mortgage brokers as it does for any other person in sales—the larger the sale, the more money you make. Brokers will make more of a profit on a larger loan and are therefore inclined to convince you to buy a more expensive property. This is why it is important to consider a home’s amenities based on you and your family’s needs, and use your own judgment regarding what will be best for your family’s budget.
Conventional versus FHA
You will pay more for an FHA home loan up front because FHA loans have higher closing costs than conventional loans and have an up-front mortgage insurance premium of 1.75% of the loan amount that is due at closing. However, a broker might be inclined to convince you to take out an FHA loan because the broker’s income on FHA loans is usually higher than his or her income on conventional loans. This is due to several factors, one of which is that the work that your broker will put into an FHA loan is considerably higher.
Overages and Underages
Overages and underages are broker fees that develop within the negotiation process. When the borrower understands that these fees can be negotiated, he or she will approach a mortgage deal in much the same way as buying a car. Often, borrowers are so excited that they qualify for a loan that they fail to negotiate the terms of that loan, which can be adjusted in their favor and they can choose to walk away if the deal isn’t right for them.