Who pays for the services of real estate agents, lenders, and mortgage brokers? It’s the question that every home buyer asks when interviewing brokers. The answer can determine your choice of a broker and which loan program you choose. It all depends on how each company or agency is paid. Here are some tips to help you understand how it works:
The Mortgage Broker’s Commission
Top producing mortgage agents’ commissions can run as high as 8%. A typical commission starts at 6% but sometimes goes up to 8%. In a complex lending situations in which many complexities are involved, commissions could be less than 6%. In some cases, commissions may be split between the real estate broker and a mortgage broker. Always make sure to do your home work and determine if you are ready to buy a home and home ownership.
The Lender’s Origination Fee
When you apply for a loan to purchase a home, the lender will charge an origination fee based on its current rates and subject to change from time to time. A $1,000 fee is not unusual and can be much higher depending on the prevailing rate environment.
If your interest rate is 3%, for example, your origination fee might equal 2% of the loan amount (minus any out-of-pocket expenses such as appraisals and credit reports). The purpose of this fee is to compensate the lender for it. This cost typically doesn’t go down when the interest rate goes down. The lender will roll this fee into your loan amount and charge you interest on it for the life of the loan.
The Mortgage Broker’s Fee
In some cases, a mortgage broker may be working with multiple lenders and therefore have access to their “best” rates, which could result in a lower rate for you than if you went directly to that lender. Sometimes, however, brokers get stuck with low-interest loans because they can’t find anything better or simply because they don’t shop around enough and therefore lose money trying to convince borrowers to refinance at worse terms than what is available in today’s market.
This means that an extra $100 per month for every $100,000 financed (for example) has to be made up elsewhere because the broker failed to find better rates. A good way to find out if you are getting the best possible deal is to ask your loan officer for scenarios with different interest rates and compare them with the terms you receive from another source, like a mortgage lender or bank directly.
For their part, brokers can charge between .5% and 1% of the total loan amount plus other fees, including flood certification fees, wire transfer charges, courier fees, etc. These usually range between $200-$300 but could be more depending on the total loan amount.