5 Ways to Avoid Getting Ripped Off By Mortgage Brokers

Enlisting a mortgage broker can make the homebuying process run more smoothly. Brokers connect buyers with multiple lenders, handling the legwork of shopping for loan terms on your behalf, typically in exchange for a fee of 1% to 2% of the loan amount. But because brokers have a financial incentive tied to the loans they place, it pays to know how the relationship works before you commit. Here are some tips to make sure you’re getting a fair deal.

Consider working with a financial advisor as you explore the best way to get a mortgage.

1. Vet Your Broker Before You Commit

Before you hand over any personal or financial information, take time to verify that the broker you’re considering is properly licensed and has a clean track record.

Start with the Nationwide Multistate Licensing System (NMLS), a federal database where you can confirm that a broker holds a valid license in your state. Any broker operating without one is a red flag you should not ignore.

From there, check their Better Business Bureau rating and search your state attorney general’s website to see whether any complaints or disciplinary actions have been filed against them. A quick web search for consumer reviews can also surface patterns of behavior that don’t show up in official records.

This due diligence takes less than an hour and can save you from a costly mistake. A broker can help you find a mortgage that meets your needs, but that relationship only works when you start with someone you can trust.

2. Understand How Mortgage Brokers Are Paid

Mortgage brokers are typically compensated by either the borrower or the lender. Their fee is often based on the loan amount and should be disclosed as part of the mortgage process. If you’re responsible for paying the fee, it may be due at closing or included among your other loan costs.

Before agreeing to work with a broker, ask how they’ll be compensated and how much they expect to receive. Once you apply for a mortgage, review your Loan Estimate to see applicable broker fees and other closing costs. A Loan Estimate is a three-page form that gives you a snapshot of the key terms and costs tied to a mortgage. In most cases, the lender must provide it within three business days after you submit the information needed to complete a mortgage application.

Understanding these charges upfront can help you determine what you’re paying for the broker’s services and avoid surprises at closing.

Compare mortgage rates now.

3. Compare Loan Terms

3 Ways to Avoid Getting Ripped Off By Mortgage Brokers

A mortgage broker can save you time by gathering loan options from multiple lenders, but you should still compare the offers carefully. Look beyond the interest rate and review the annual percentage rate (APR), lender fees, estimated closing costs, monthly payment and whether the loan includes features such as points or a prepayment penalty.

Your Loan Estimates can make these comparisons easier because they present key costs in a standardized format. If one loan appears significantly more expensive than another, ask the broker to explain why and whether a more competitive option is available.

4. Ask About Locking Your Rate

Mortgage rates can change between the time you receive an offer and the day you close. A rate lock can help protect you from those fluctuations by keeping your interest rate the same for a set period, as long as you close within that window and there are no significant changes to your application.

Check your Loan Estimate to see whether your rate is already locked and, if so, when the lock expires. If it isn’t locked, ask your broker when you can lock it, how long the lock will last and whether there are any fees to extend it if your closing is delayed.

Keep in mind that a rate lock doesn’t necessarily guarantee every cost listed on your Loan Estimate. Some costs can change before closing, and even a locked rate may change in certain circumstances if details of your application change.

5. Get Quotes from More Than One Broker

Just as you would compare rates from multiple lenders, it’s worth approaching more than one broker before committing. Different brokers have relationships with different lenders, which means the loan options available to you can vary from one broker to the next. Getting a second quote may also give you leverage. If a broker knows you’re comparison shopping, they may have more incentive to put their best offer forward. It takes more time upfront, but it could help you confirm you’re getting a competitive deal.

Related Article: What Is a Mortgage Broker?

Bottom Line

One of the best ways to avoid a mortgage broker scam is to check them out before you enter into a relationship with them. You can look at their Better Business Bureau rating and check with your state attorney general’s office to see if any complaints have been filed against them. If nothing turns up, you can scan the web for negative consumer reviews that might shed some light on how a particular broker operates.

Tips on Finances

A financial advisor can offer valuable insight and guidance on handling debt, whether that be mortgage debt or other kinds of debt. Finding a financial advisor doesn’t have to be hard. SmartAsset’s matching tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Use our no-cost mortgage calculator to get a quick estimate of your monthly mortgage payment with taxes, fees and insurance.