When you have been in any industry long enough, you hear all sorts of comments about the industry. Some are factual and then there are the urban myths. I thought I would highlight a few of the more common ones. Mortgage lending is typically misunderstood as it is so myths don’t help.
Myth 1) Mortgage Brokers will issue pre-approvals higher than banks
The client that told me this was concerned that I would give him a higher preapproval amount than his bank would so I would get paid more. This would result in him being house rich and cash poor and more likely to go into foreclosure. All lenders use the same funding ratios when determining how much a client can afford. These ratios apply equally to brokers as they do to banks so this is a complete myth and probably a scare tactic put forward by the Big Five banks to dissuade clients using mortgage brokers.
Myth 2) Mortgage Brokers charge fees
I have been in this industry for 14 years and never charged a client a fee. Brokers are paid a finder’s fee by the financial institution where the mortgage is placed. This finder’s fee is based on the size of the mortgage and has nothing to do with the interest rate. Employees at the Big Banks are also paid a commission – however, their commission is based on the interest rate that they can negotiate you to pay!
Myth 3) Lenders want you to go into foreclosure
Not true at all. Lenders are in the business of lending money, not owning real estate. As highlighted in number 1 above, lenders have two funding ratio percentages that have been developed over years of lending money. These are specifically designed to prevent clients from becoming house rich and cash poor. Should a client still go into foreclosure, the house is sold, the lender mortgage paid out and any remaining proceeds given to the former home owner. The lender isn’t making money of these types of transactions.
Myth 4) Preapprovals are rock solid
Preapprovals are only as good as the person who issued them. I can’t tell you how many home purchases I have had to save over the years that were originally based on a poor preapproval. I have seen situations where the bank issuing the preapproval never even pulled the clients credit history! Ask questions, get the preapproval in writing and confirm that your credit history has been pulled at a minimum!
Hopefully I have managed to shed some light on my world and if you have any questions or mortgage needs, please feel free to contact me!