304 North Cardinal St.
Dorchester Center, MA 02124
304 North Cardinal St.
Dorchester Center, MA 02124
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.
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:
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.
There are three primary ways mortgage brokers can receive 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.
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.
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.
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:
|0.5% – 1.5% of loan amount
|$300 – $500
|Credit Report Fee
|$50 – $100 per report
|$300 – $600
|$295 – $395
|$200 – $300
|Rate Lock Fee
|0.25% – 0.5% of loan amount
|Title Search Fee
|Depends on timing of first payment
|Varies based on down payment
Here are some common fees mortgage brokers may charge borrowers:
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.
A flat fee, often around $400, to process your mortgage application. This may include services like taking your application information, ordering documents and more.
Paid for the broker to guide you through underwriting and securely submit required documents to the lender. Typically $200-$300.
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.
Covers admin work like assembling required documents, communicating with lenders and more. Usually a flat fee of $295-$395.
Pays for the broker to order credit reports from the three major bureaus. Typically around $50 per report.
Covers the cost of hiring an appraiser to evaluate the property. Ranges from $300-$600 on average.
Usually totaling $700-$1200, this pays for the title search and insurance policy to protect against issues with the legal ownership of the property.
Depending on when your first payment is due, you may need to pay interest for the days between closing and your first payment.
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.
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:
Cons of using a broker:
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.
If you do work with a mortgage broker, some tips to reduce your costs include:
Thoroughly evaluating multiple brokers and being an informed negotiator is key to controlling costs.
To find a trustworthy broker that provides value and saves money:
Vetting brokers thoroughly helps avoid paying for services you’re unhappy with.
Yes, it is absolutely possible to negotiate mortgage broker fees and services. Brokers’ fees are not set in stone. Here are some tips:
Being proactive in asking about fee reductions and negotiating competitively priced services is key.
Important questions to have transparency about any fees your broker charges include:
Thorough communication ensures you understand exactly what you are paying the broker and have opportunity to optimize the costs.
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.