What Is a Mortgage Broker Fee?

When deciding to take a loan for a new home, there are numerous fees that you can be charged as part of your closing costs, and one of those fees could be mortgage broker fees. But what are these fees, and are you obliged to pay them?

A mortgage broker’s fee is a fee a mortgage broker charges for its services. This fee can be charged to the borrower or lender, but not both. The broker’s fee is usually around 0.5 to 3 percent of the principal loan.

However, there are ways you can skip paying these fees, so keep reading.

What Is a Mortgage Broker, Lender, and Loan Officer?

To understand what are mortgage brokers’ fees, you need to know what mortgage brokers do and the difference between loan officers, brokers, and lenders. Lenders are financial institutions or banks that issue loans for your mortgage. For example, Bank of America is the lender. Loan officers are licensed individuals that work for a lender, and they are the ones that will process your mortgage lien. A broker is a person or institution that acts as a middleman between the borrower and the lender. Brokers will often work together with mortgage packagers when processing your loan. Take a look at the main differences between these professions.

Lender	Loan Officer	Broker
Financial institution or bank that issues the loan.	A person that works for the lender and will process your loan.	A middleman between borrowers and lenders. They are professionals that will present you with multiple loan choices from different lenders.

What Does a Mortgage Broker Do?

When applying for a loan, there are a lot of things you need to do, and one of the most important parts is to do good research on the lenders and loans available. Here is where brokers step in. They are professionals that will go through all your documentation, check your financial situation and FICO score, and search among the pool of lenders to find you the best loan. You can even hire them to find you a reverse mortgage loan or when you want to refinance your existing lien. Here are all the responsibilities of brokers:

• Check your income,
• Check your credit score,
• Check your documentation,
• Apply for a mortgage with you,
• They present you with multiple choices for a lien,
• Fins you the best loan for your circumstances.

How Are Mortgage Brokers Paid?

As you can see, there is a terminology you need to be familiar with when applying for a mortgage, and a broker is one of them. So how do mortgage brokers make money? Well, they charge fees for their services. The fees can be charged to borrowers or lenders. A broker fee is usually between 0.5 to 3 percent of the principal loan. Usually, these professionals will not charge borrowers any fee, so your closing costs should not have this included. However, it can happen that you are charged, and that depends on the lender and broker you choose. So make sure, before you start the approval process, to ask about this fee and who will cover it. 

What is the Dodd-Frank Act?

New regulations in the Dodd-Frank Act have changed and better regulated how brokers can be paid. Before this legislation came into place, lenders could influence brokers to get their clients to agree on high-interest rates loans and costly fees. In essence, the broker was in a conflict of interest since the lender was the one who paid them for their services.

With the new law, these rules have changed. Here are some ways brokers can not be paid:

• They can not charge you hidden borrowers fees,
• Their payment can not be tied to your interest rate,
• They can not receive money for steering you in the direction of the company or an individual you will need for your loan, such as a title company or a real estate agent,
• They can not be paid by you and the lender at the same time.

Can You Avoid Paying For Mortgage Broker Fees?

So how can you avoid paying this commission? If you take a loan that states that you will pay the originator fee, this means you will pay 1% of the whole loan to the broker. However, if you don’t want to pay this fee, you can take something called “par pricing.” That simply means that you refuse to pay for this commission and that the lender will take the full responsibility for paying the commission.

Is Hiring a Broker Worth It?

Even though there are many online lenders now available, there are still many old-school lenders which you must contact in person in order to get an offer from them. To present you with the offer, the lender must check your credit score. Once the credit report is asked for, it will immediately drop your score down. That means you have little time, around one month, to seek lenders with an intact credit score.

Here is where brokers truly come in handy. They can scope through the sea of lenders in no time to find you the perfect deal, and they will wrap up all the documentation for you. Of course, you can always double-check and see the offers from different lenders in case you suspect faulty play from your broker. Still, in the end, hiring a broker can bring you more benefits than risks.