Mortgage Brokers
There are so many different terms associated with mortgages these days that understanding what they all mean can be frustrating. One term that is often heard and rarely understood is Mortgage Broker.
What is a Mortgage Broker?
A mortgage broker negotiates, originates, and processes real estate loans on behalf of the consumer. Mortgage Brokers can save you time, money, and frustration as they hunt down the best mortgage for you. The broker is required by most states to be licensed, regulated by the state and personally liable (punishable by revocation or prison) for fraud for the life of a loan.
For borrowers with poor credit records, or other unusual circumstances, finding a lender may be difficult. A mortgage broker may have specialized knowledge and multiple lending sources, and may be able to identify appropriate lenders for each class of borrower.
How Do They Differ From Loan Officers?
A mortgage broker differs from a loan officer in that the broker works as a middleman between the consumer and the lender. The loan officer works directly for the lender. Typically, a mortgage broker will make more money per loan than a loan officer but the loan officer is able to get more referrals from the lending institution to sell more loans. A mortgage broker has lower overhead costs compared to large banks because of their small structure. They have the ability to lower rates to compete for clients.
Do You Have To Pay For a Mortgage Broker?
Some charge fees (processing or origination fees); some do not. A broker can be paid for his services from up-front fees directly charged to the borrower and/or through fees paid indirectly by the borrower through the lender in what is referred to as a "yield spread premium".
The commissions that are earned from the lender are fairly standard, ranging from 0.5 percent to 1.25 percent of the mortgage amount, depending on the length of the term. (A client that locks in for five years will bring a higher commission than one that opts for a variable rate.)
The following are the Real Costs (costs that every loan has and which the broker makes no money on):
• Appraisal
• Title fees: title insurance, recording fees, title paperwork preparation
• A processing fee (cost of hiring employees to process the loan)
• Mortgage insurance (for loans over 80% of the property's worth)
• Pre-paid interest
• Credit report fees
• Inspection fees (generally termite inspection)
The rest of the fees are usually split by the mortgage broker and the loan officer.
