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Truth in Lending

Trusting Mortgage Referrals

When in the market for a principal mortgage, it can be difficult to know who to trust. While you may be offered many referrals, you have to look carefully and determine whether the person suggesting a lender has a financial stake in your decision.

Not everyone who will give you advice is looking out for your best interest. Let’s look at some of the referral types and how to analyze them.

One of the most common referrals comes from real estate agents. This is because home-buyers often develop a close relationship with their agent while house-hunting, and are receptive to their advice in the mortgage area. When it comes to a lender who will close on time, the agent’s interests are aligned with the buyer’s.

However, when it comes to interest rates, the agent has no particular interest one way or the other. The agent doesn’t want the rate to be so high that the buyer gets angry and blames the agent, but has no real incentive to recommend a lender with a particularly low rate. Lenders often attempt to get on an agent’s good side. Though paying for referrals is illegal, the law isn’t enforceable and may often be violated.

A recommendation or referral from a friend or family member who has borrowed from a lender is often considered the most trustworthy. The referral comes from a person with no financial stake in your decision. However, you should make sure the reference is based on solid information.

You should find out if your friend shopped before choosing his lender. Also determine if the transaction was anything similar to your upcoming one. Find out how well the lender dealt with questions, and how reliable he | she was.

Finally, one of the most suspect referrals is one from a builder who is constructing your home. Often, the lender and builder have an arrangement whereby the lender provides a higher rate and gives the builder a kick-back for the reference. You can prevent this by shopping around to prevent the recommended lender from charging above the average rate.


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