All mortgage brokers charge a fee for originating a home loan. Most brokers will not require you to pay an upfront fee when you are shopping for a mortgage, but they will place their fees into the closing costs of the loan in the form of points that are called an “origination fee.”
This fee is normally 1-3% of the total loan amount. They are required by law to disclose these fees to the borrower.
The larger the loan, the lower the fee and the smaller the loan, the higher the fee. For example, on a $500,000 loan, a broker might charge 1 point or 1% and make approximately $5,000 and on a $100,000 mortgage they may charge 3 points and make $3,000. Normally they do the same amount of work on a large loan as they do on a small loan.
Mortgage brokers may charge more for trickier mortgages such as hard money loans that may require a lot more work on behalf of the broker and are more difficult to close. These loans typically cost from 5-6% or points to close.
Sometimes brokers charge loan administration fees. These fees are often called junk fees and are mostly unnecessary.
They may also earn a commission from the lender in the form of a rebate or Yield Spread Premium (YSP). A YSP is paid to a broker for charging their clients above the market rate. However, as of April 1, 2011, yield spread premiums are banned. Now mortgage brokers can only get paid by either the borrower or the lender, not both.
A mortgage broker is who we can call a middleman between the lender and the borrower. Their role is to shop for available loans for their client from several lenders in order to find the best deal.
A mortgage broker is helpful for buyers who do not have the time and energy to shop around by contacting the various lenders and inquiring about mortgage rates, closing costs, and various fees. It is the task of the mortgage broker to obtain all of the information, compare them, and make recommendations.
However, it is advisable to be careful when using a mortgage broker. He should not be allowed to provide the lender with wrong information about your financial situation. It is also important to check with the lender or bank to make sure that they have really approved what the broker is claiming to be the best offer.