Do First-Time Homebuyers Pay More to Mortgage Brokers?

Purchasing a home is an exciting milestone, but it comes with a multitude of questions—particularly regarding the cost of mortgages. First-time homebuyers are generally not certain if the cost of a mortgage broker is higher for a first-time buyer but not for a recurring buyer. The short answer? Not always, but there are a couple of determining factors that decide what you pay.

How Mortgage Brokers Get Paid

Mortgage brokers are most often compensated with borrower-paid compensation (direct fees paid by the borrower) or lender-paid compensation (paid fees by the lender). What that means is whether you're a repeat homebuyer or a first-time homebuyer, how the brokers charge you fees is quite uniform with all customers. Your total expense, though, may vary depending on the complexity level of your loan, the lender you choose, and the type of mortgage product to which you qualify.

Why First-Time Buyers May Pay More

Even when brokers are not directly charging first-time homebuyers higher fees, there are reasons why some end up paying more:

•  Short Credit History & Low Credit Scores – First-time buyers will have lower credit scores or short credit histories, and this is likely to increase the mortgage charge and rate.
•  Lower Down Payments – Most first-time home buyers pay down payments below 20%, which may require private mortgage insurance (PMI) or other financing options with additional costs.
•  Loan Complexity – If the borrower's income comes from untraditional sources, has heavy debt, or requires special loan programs, the acquisition of the ideal mortgage can take extra effort, and hence the additional cost of a mortgage broker.

Ways First-Time Buyers Can Save Money

If you are a new homebuyer and want to avoid paying mortgage broker fees, use these tactics: 

• Compare Brokerage Fees – Always ask to see a Loan Estimate (LE) when comparing brokerage fees between mortgage brokers.
• Negotiate Broker Compensation – It is possible to negotiate commissions with certain brokers, especially if you have good credit and are financially well-to-do.
• Check First-Time Homebuyer Programs – There are options of lower prices, lower deposits, and assistance offered by different state and governmental programs.
•  Improve Your Credit Score – A better credit score will make you eligible for improved rates, which can mean lower fees in total.

Also Read:  Reverse Mortgages vs. HELOCs: Which is Best for Your Retirement? 

Final Thoughts

Even though mortgage brokers do not charge first-time buyers an exaggerated price by default, the personal financial situation may affect the final cost of a mortgage broker. The best way to get a good deal is to shop around, compare prices, and also ask appropriate questions before settling for a mortgage broker.