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How Do Home Loan Brokers Get Paid?

If you are looking to purchase a new home, you should be ready to experience a time full of home tours, short lists and memories. However, if you are new in this field, you may find it hard to get a mortgage.

You may not have the time to get in touch with different lenders, check details and apply for a mortgage. In this case, it’s better that you contact a mortgage broker for assistance. You should know a few basic things before you work with a good professional. The first question is, how do home loan brokers get paid? We are going to answer this question in detail.

What do Mortgage Brokers do?

To finance your purchase, you may contact a bank or a loan provider. Since a bank is just an institution, it can offer a lot of loan options. Therefore, it may not be able to meet your needs.

On the other hand, if you contact a mortgage broker, they can offer a lot of loan options from a lot of lenders. The role of these professionals is to look for the best mortgage rate based on your needs.

For instance, if you need to buy a house but you can’t pay more than 5% of the house price as down payment, the remaining amount will be covered by your mortgage loan. Your mortgage specialist can find a lender that can agree to these terms.

With this type of specialist, you can easily look for a lender who is ready to provide you with the money you need to buy your desired house.

How do Loan Brokers get paid?

First of all, it’s important to keep in mind that these brokers are not bank employees. They are independent workers with proper licensing. Therefore, they get paid in the form of service fees. The payer of this fee can be you, the lender or the borrower.

Typically, this fee is a percentage of the total loan amount, which can be around 2%. The dollar amount is paid upfront or made part of the loan.

Although the commission is only 1% to 2% of the amount, it can be a lot of money for the broker. Based on the number or size of the loan, the fees may vary. However, the good thing is that there are no hidden fees.

The good news is that loan brokers are required to reveal all the fees before they sign a contract. Therefore, you will have to pay only the amount disclosed by them. Aside from this, each fee must be listed on the document. You can ask the broker about all the fees and the purpose they are given on the list.

Before you apply for a mortgage, we suggest that you figure out all the fees that you will have to pay. After all, you don’t want to face surprises at the end.

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How To Pay Off Your Mortgage In 5 Years

My wife and I were “home buyers” for at least 7 years on our current residence. Notice that I said home “buyers,” and not home “owners.” There is a common misconception that when you take out a mortgage, you are immediately a home “owner”

Assuming that you have a 30 year mortgage, the reality is that you are simply in the process of buying the home over a 30 year period. The bank, is the true owner of the property. If you don’t believe me, try missing a few mortgage payments, and see what happens.

3 months ago, we paid off our 30 year mortgage (in 7 years, or 23 years early). Now we are true home “owners.” In this article, I’m going to show you step by step how we were able to accomplish this. Using our existing income, and without incurring any additional debt.

Equity

Let’s talk about “Equity.” Equity, or appreciation, is the difference between what your home is worth and what you owe to the bank. So if you owe $100,000 and your house is worth $300,000, then you have $200,000 of Equity in your home.

We had roughly $250,000 of Equity on our house. We owed the bank $115,000 and our house was worth $367,000.

This $250,000 is dormant. Meaning, it looks good, but it wasn’t doing anything for us.

Home-Equity Line of Credit (HELOC)

So the first thing that we did was we ‘tapped’ into this equity. We went to the bank and took out an Home Equity Line of Credit for $50,000.

What is an equity line of credit? Also called a HELOC, an home equity line of credit is a liquid line that you are able to draw funds from at any time for any purpose. It’s like a gigantic credit card.

Although the HELOC had a limit for $50,000, the amount that we owed on it was $0 at the time that we took it out. This is because, similar to a credit card, you don’t owe anything until you actually use it.

Use HELOC to Pay Down Mortgage

Immediately after we got the HELOC, we withdrew $20,000 and applied it to our Mortgage (additional principal payment).

So at this point, we have $20,000 due on the HELOC, but our mortgage has been paid down by $20,000 (from $115,000 to $95,000).

Use HELOC as “new” Checking Account

Before I go on, let me mention that after we used the $20,000 to pay down our mortgage, we still had the same $115,000 of debt ($20,000 on HELOC and $95,000 on Mortgage).

So to payoff the HELOC, we just used it as our new checking account. When we got paid, we took 100% of our paychecks and applied it to the HELOC.

Now you may be wondering, “with all of our money going to the HELOC, how did we pay our bills?” Remember the HELOC is a “liquid” line. So at the end of each month, we made 1 withdrawal from the HELOC to pay our bills (including our mortgage).

100% of Cash Flow

For us, our monthly paychecks totaled roughly $6,000. Our bills, including our mortgage, and all of our living expenses (gas, groceries, etc.) totaled approximately $3,500. So by applying 100% of our monthly checks to the HELOC, and then using the HELOC to pay our bills, we were able to use 100% of our monthly cash flow to pay the $20,000 HELOC off.

So with and estimated $2,500 of cash flow ($6,000 minus $3,500) the $20,000 was paid off in 8 months.

Repeat The Process

We repeated this process until the remaining $95,000 was paid off (approximately 2 years).

What Do You Need?

1. Cash Flow – You must have positive cash flow in your household budget

2. Credit Score – A decent credit score (650 or above)

3. Equity – Positive equity in your home.

What You Should Know

VERY IMPORTANT: The HELOC should be used to paydown your mortgage. It should not be used to fund a vacation, buy a car, or a boat.

ALSO IMPORTANT: The HELOC is not a Home Equity Loan (HEL). A Home Equity Loan is a 2nd mortgage, and it is treated the same.

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Mortgage Brokers: Basics That You Should Know

The term mortgage broker refers to a company or person that can make arrangement for a mortgage between two entities. These entities are usually a lender and a borrower. The lender is known as a mortgage lender. This professional works directly with the borrower to help them opt for the right type of mortgage. In this article, we are going to find out more about this professional. Read on to now more.

Why should you use a Mortgage Broker?

Basically, this professional helps you throughout the process of looking for and applying for a mortgage. Their role is to get you the best deal on the basis of your circumstances. Listed below are some of the services they offer.

They help you make an assessment of your financial situation
They suggest the most suitable option to meet your needs
They help you search the market to help you look for the best deal to match your criteria
Now that you know about the role of these professionals, we suggest that you check out the pros and cons of working with one. This will help you decide whether you should go with these pros or not.
Pros

Convenience: If you don’t know anything about these markets and finance, you may want to work with a broker. After all, it requires a great deal of time, money and effort to look for deals, handle the paperwork and talk to lenders.

Access: Since these pros have a good deal of experience in the field, they are in touch with other professionals as well. For instance, they have a good business relationship with many lenders as well. Therefore, they can help you look for the best deal based on your needs.

Expertise: The problem is that the mortgage industry is not easy for everyone to understand. When the rate of interest goes up or down, it has a great impact on the number of mortgage deals. Therefore, consulting an expert is a stroke of genius. After all, you don’t want to make decisions based on your lack of knowledge.

Cons

Cost: Since these professionals charge for their services, you may have to set a budget to use their services. This will reduce the amount of money you can set aside for rainy days.

The service charges of these professionals vary significantly. Therefore, we suggest that you shop around before hiring one to meet your needs.

Limitations: It’s important to keep in mind that not all of these brokers have access to the whole market, which means depending on a single broker may limit the options available to you.

Quality: Experience and qualifications may vary between brokers. Therefore, if you end up hiring an inexperienced one, you may not be able to go through the process in a timely fashion. And you may not be able to get the best deal.

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