Buyers closing cost rebates are becoming more prominent with mortgage broker for the various types of mortgage sources — with different rules to consider for each type. Mortgage brokers have started advertising substantial credits to entice potential customers. Buyer’s closing cost rebates or credits could range from $2,000 to $5,000 per loan, but sometimes the rebates can go as high as $10,000 or more to help reduce borrower’s closing costs. In Kenneth R. Harney’s article in last Saturday’s Washington Post editorial under “The Nation’s Housing”, he provided the results of a survey of 164 member firms of the National Association of Mortgage Brokers. The survey found that mortgage companies provided more than $69 million in closing cost credits to buyers during last year, and on track to pay out the same amount or more this year. Mr. Harney noted that the Mortgage Brokers’ group estimated that brokers nationwide rebated upwards of $2 billion in 2012.
Buyers closing cost rebates vary, however, when shopping for a mortgage loan use due diligence and compare terms and rates from competing banks before making a final decision and signing on the dotted line for a loan. If the mortgage broker is not willing to offer a credit or rate reduction, you have the option to move on to another mortgage lender who may be willing to offer some type of incentive. Some mortgage brokers are required by federal rules to rebate funds to the buyer. Other competing banks may not be required to offer rebates. Under federal policy issued by the Federal Reserve Board, brokers who do not lend their own money can shop around among multiple creditors on behalf of borrowers, and they must disclose all their fees upfront to applicants. Mortgage brokers are not permitted to earn any more than the disclosed amounts, even if the funding source they chose for a buyer at a specific interest rate will pay them a premium for the loan. When mortgage brokers receive premiums, the extra money must be credited to the borrower as a credit.
Banks that lend their own money by contrast, are under no obligation to offer premiums. However, they do have the option to offer an applicant a credit – or not- in connection with a given interest rate. Some mortgage brokers will advertise its credits and use this as a selling point with potential clients.
Bottom line – shop around among competing banks and mortgage companies. Ask about the availability of buyers closing cost rebates or credits toward closing cost expenses. If the lender is quoting you a “posted” rate at the time of your inquiry, there may be credits toward closing expenses available at that rate or at another rate. Take the time to review the rate scenarios, fees, monthly payments and cash needed to close with your chosen lender. You may be surprised at what you may discover!