Mortgage Broker Costs: Fees and Charges Explained

A mortgage broker acts as an intermediary between borrowers and lenders to help borrowers find and obtain mortgage loans. Using a mortgage broker can provide convenience and expertise, but also comes with fees and costs that borrowers should understand. This article will explain how mortgage brokers get paid, typical fees charged, whether using a broker is worth the cost, tips for saving money, and what questions to ask about fees.

What is a Mortgage Broker?

A mortgage broker is a professional who facilitates mortgage loans on behalf of the borrower. The primary role of a mortgage broker is to work with multiple lenders to find the best loan options for a borrower’s specific financial situation and goals. 

Mortgage brokers provide services including:

• Advising on different loan types, rates, fees and lender requirements
• Assisting with the mortgage application and paperwork
• Acting as liaison between borrower and lender throughout underwriting and closing
• Negotiating with lenders to secure favorable loan terms

Mortgage brokers do not lend money directly. Instead, they access wholesale lender rates and programs that a borrower may not be able to access directly.

How Does a Mortgage Broker Get Paid?

There are three primary ways mortgage brokers can receive compensation:

1. Lender-Paid Compensation

Some lenders pay brokers an upfront or ongoing commission for originating loans. This commission is usually 0.5-1% of the loan amount. For example, on a $300,000 loan a 1% lender-paid commission would equal $3,000.

Lender-paid commissions allow borrowers to avoid paying direct fees to the broker. However, critics argue brokers may favor lenders that pay higher commissions over loans that best fit the borrower’s needs.

2. Borrower-Paid Compensation

Brokers can charge borrowers direct fees for their services. Common fees include an origination fee, application fee, underwriting fee and more (detailed in next section). 

With borrower-paid compensation, the borrower knows exactly what they are paying the broker for facilitating their loan.

3. Combination of Both

Some brokers receive a portion of their compensation from both the lender (commission) and the borrower (fees). This helps offset lower lender commissions while still requiring some payment from the borrower.

According to LendingTree, 75% of brokers use a combination of both lender-paid commissions and borrower fees.

How Much Does a Mortgage Broker Cost?

Mortgage broker fees typically range from 1% to 2.5% of the total loan amount, depending on factors like the borrower’s location, credit score and desired loan type. According to ValuePenguin, the average mortgage broker fee is 1.92% of the loan amount. 

Here is a table showing typical mortgage broker fees:

Fee	Typical Cost
Origination Fee	0.5% – 1.5% of loan amount
Application Fee	$300 – $500
Credit Report Fee	$50 – $100 per report
Appraisal Fee	$300 – $600
Processing Fee	$295 – $395
Underwriting Fee	$200 – $300
Rate Lock Fee	0.25% – 0.5% of loan amount
Title Search Fee	$300-$500
Title Insurance	$400-$700
Prepaid Interest	Depends on timing of first payment
PMI	Varies based on down payment

Here are some common fees mortgage brokers may charge borrowers:

1. Loan Origination Fee

This upfront fee ranges from 0.5% to 1.5% of the loan amount. It covers the broker’s work in processing your application and originating the mortgage loan on your behalf.

2. Application Fee

A flat fee, often around $400, to process your mortgage application. This may include services like taking your application information, ordering documents and more.

3. Underwriting Fee

Paid for the broker to guide you through underwriting and securely submit required documents to the lender. Typically $200-$300. 

4. Rate Lock Fee

If you lock in an interest rate, brokers may charge a 0.25%-0.5% fee based on the loan amount. Locking in a rate prevents it from rising before closing.

5. Processing Fee

Covers admin work like assembling required documents, communicating with lenders and more. Usually a flat fee of $295-$395.

6. Credit Report Fee

Pays for the broker to order credit reports from the three major bureaus. Typically around $50 per report.

7. Appraisal Fee

Covers the cost of hiring an appraiser to evaluate the property. Ranges from $300-$600 on average.

8. Title Insurance and Title Search Fees

Usually totaling $700-$1200, this pays for the title search and insurance policy to protect against issues with the legal ownership of the property. 

9. Prepaid Interest

Depending on when your first payment is due, you may need to pay interest for the days between closing and your first payment.

10. Private Mortgage Insurance (PMI)

If your down payment is less than 20%, you may have to pay PMI, which protects the lender from default. Cost varies based on amount borrowed.

While this may seem like a long list of fees, the origination fee and application fee make up the bulk of total broker charges for most borrowers.

Is Using a Mortgage Broker Worth the Cost?

The question of whether it’s worth paying mortgage broker fees boils down to whether the broker can save you money compared to getting a direct lender loan.

Pros of using a broker:

• Access to a wider range of loan programs – brokers can find deals borrowers can’t on their own 
• Expert guidance through the complex mortgage process
• Ability to compare multiple lenders and loan offers at once
• Potential for lower rates than retail lenders – brokers can negotiate lower wholesale rates
• More customized service than just applying directly or online

Cons of using a broker:

• Broker fees can be an added expense on top of lender fees
• Product selection might be limited for any one broker who can’t access every lender/loan program 
• Some brokers are only motivated by higher commission deals, not finding the optimal loan fit
• Borrowers need to vet brokers carefully for trustworthiness and experience

Whether it’s worth it often comes down to an individual borrower’s situation. For complex loans, niche programs or borrowers needing extra guidance, a broker may provide value that exceeds the fee cost. But for standard loans, a motivated borrower able to shop and apply directly may not need broker services.

How to Save Money on Mortgage Broker Costs

If you do work with a mortgage broker, some tips to reduce your costs include:

• Shop around – compare quotes from multiple brokers to negotiate competitive pricing
• Look for fee waivers – some brokers offer to waive certain fees to win your business 
• Avoid a rate lock – don’t lock your rate until necessary to avoid the lock fee
• Ask about discount programs – brokers may offer discounts for certain borrower types 
• Leverage competition – mention better offers from other brokers to see if they’ll beat pricing
• Pay points for a lower rate – you can pay points upfront to buy down the interest rate
• Check for lender credits – lenders sometimes offer credits toward closing costs
• Opt for lower rate over fees – taking a slightly higher rate saves more money long-term

Thoroughly evaluating multiple brokers and being an informed negotiator is key to controlling costs.

Tips for Choosing a Mortgage Broker

To find a trustworthy broker that provides value and saves money:

• Verify proper state licensing for brokers you are considering
• Review ratings/reviews on sites like Zillow, Bankrate and Yelp
• Ask about experience with specific loan types you are interested in 
• Ask what lenders they work with and services they provide
• Get referrals from real estate agents and financial advisors 
• Check rates from multiple brokers before deciding
• Compare overall cost estimates, not just mortgage rates
• Understand how the broker is compensated by lenders and borrowers
• Check credentials like certification or membership in professional associations 

Vetting brokers thoroughly helps avoid paying for services you’re unhappy with.

Can You Negotiate With a Mortgage Broker?

Yes, it is absolutely possible to negotiate mortgage broker fees and services. Brokers’ fees are not set in stone. Here are some tips:

• Get fee estimates in writing – ask brokers to provide initial fee quotes in writing so they can be negotiated down
• Compare competitor pricing – mentioning better offers from other brokers gives leverage for negotiating
• Offer to provide referrals – providing referral opportunities can be bargaining leverage for reduced fees
• Ask about fee waivers – see if brokers can waive any fees to earn your business 
• Promise repeat business – promising to provide future refinance or loan business may motivate brokers to cut costs
• Pay points for credits – paying points to buy interest rate down can be traded for lender credits covering fees

Being proactive in asking about fee reductions and negotiating competitively priced services is key.

What Questions Should You Ask Your Mortgage Broker About Fees?

Important questions to have transparency about any fees your broker charges include:

• What is your total estimated fee for my loan, and what does that include?
• Do you receive any commissions or payments from lenders? 
• Specifically which fees will I be charged as the borrower?
• Can any of these fees be waived or reduced? 
• How do your fees compare to other brokers I am considering?
• Are the fees negotiable depending on the services I need or how much business I send you?
• Do you have recommendations for no-fee or low-fee alternatives for certain services?
• Can you provide your fee schedule and cost estimates in writing?

Thorough communication ensures you understand exactly what you are paying the broker and have opportunity to optimize the costs.

Conclusion

Mortgage brokers can provide helpful services but also charge various fees averaging 1-2% of total loan amounts. Typical fees include an origination fee, application fee, underwriting fee, appraisal fee and more. It’s important for borrowers to understand how brokers are compensated, ask detailed questions about costs, and negotiate fees competitively. While not always necessary, brokers can provide guidance and rate savings that outweigh their costs for many borrowers.