What is a Mortgage Broker and How Much Do They Cost?
When you go to a bank for a mortgage, you work with a loan officer and are limited to the products and offerings provided by that bank–which might or might not be a good fit for you. A mortgage broker is different in that they don’t work for a specific bank but rather can shop around with multiple banks and lenders to find you the loan that best meets your needs and circumstances. A mortgage broker is an independent loan professional who can look at a wide variety of products and offerings from a large number of banks to find exactly the mortgage and lender that is right for you.
Mortgage Broker Fees
Because mortgage brokers don’t work for a specific bank, there are fees associated with their services. Typically, a mortgage broker’s fees are between 1-2% of the loan amount. In many cases, the fees for the mortgage broker are covered by the seller as a part of the closing costs. If the buyer ends up paying the mortgage broker fee, they can either pay it up front or include that amount in their loan. Mortgage brokers must disclose all of their fees up front and cannot deviate from what they quoted in that up front disclosure. Also, all of their fees should be clearly itemized and presented to you up front as well. This means you should have no guesswork or hidden fees to worry about when you work with a mortgage broker.
Mortgage Broker Restrictions
Years ago, mortgage brokers were not as tightly governed or restricted in their practices, which gave them a bit of a bad reputation. However, since the passage of the Dodd-Frank Act that protects consumers in their dealings with loan professionals, many of the issues that caused mortgage brokers’ bad reputation have been dealt with legally. According to the Dodd-Frank Act, mortgage brokers cannot do the following:
- Have their fees tied to interest rates
- Receive payment from lenders to direct you to those specific lenders
- Charge any “hidden fees” and must disclose all fees up front
- Receive payment from both the buyer and the seller
When you are shopping for a home loan, a mortgage broker can be a great asset in your search. They can do the legwork for you to help you find the right loan package with the right lender to meet your needs.