At Team Reba we regularly talk to our clients about compensation of the various contacts involved in their real estate purchase. Since most people can’t afford to pay cash for a property here in the Puget Sound region, they usually need to get a mortgage or loan of some type. Coming up soon, April 1, 2011, there will be new rules around compensation for mortgage originators.
Most people don’t know that many mortgage brokers have been compensated on the type of loan and the terms of the loan on top of the fee structure charged to the buyer when the loan was closed. A standard fee is 1% of the loan amount. In the past, there was a thing called POC that would show up on a HUD closing statement that referred to “paid outside closing” which was a fee a lender would pay the mortgage originator for placing the loan. Many consumers had NO IDEA that this was happening. Now, not all lenders are paid this way, so you HAVE TO ASK! It’s essential that you do it and it’s not considered rude.
Why does it matter? Well, a lot of people got put into loans that had unsustainable long term payments, some of those adjustable rate mortgages (ARM), or they may have been given a loan they couldn’t refinance in the first few years with out a major financial penalty – or both. I saw this happen to clients of mine who refinanced after an initial purchase. It was painful to have the conversation once they realized the situation they had unknowingly put themselves in.
I’m always a big proponent of reviewing with a client what they’re being offered as a loan option. Not because agents are better at it, but we know more by working in the industry and doing many deals over your once every 5-10 year purchases, so we’re up to speed. Some folks try to keep these elements separate, but it can be detrimental. If you don’t trust your agent enough to discuss your financing, then maybe you have a bigger problem because you should be able to trust your advisors to share openly since we’re all supposed to be looking out for your best interests.
As always, if you have questions about this, or any other, article on our blog – feel free to call or send us an email. We’ll be happy to help you out.
