||Ask Dr. Don
Mortgage broker compensation
Dear Dr. Don,
When using a mortgage broker to refinance a 30-year mortgage to
another 30-year mortgage, is it common for the broker to receive
a "finder's fee" from the purchaser? If so, what is the
normal percentage, and how negotiable is this percentage rate?
Thanks in advance,
A finder's fee, paid to the mortgage broker by the originating lender,
is just one way that a mortgage broker can be compensated for arranging
A mortgage broker is an intermediary between you and
the lender. Like most middlemen, they add a markup to the wholesale
cost and then you pay the retail rate.
There's nothing wrong with this arrangement as long
as the mortgage broker doesn't cut corners to increase his profit
margins and provided that he hasn't priced a huge mark-up in his
Michael Larson's Bankrate feature on using
a mortgage broker can help you understand how to manage this
process. A typical starting point for a mortgage broker is to charge
you one point (1 percent of the loan amount) for his services. You
may also have to pay an application fee.
Most mortgage brokers don't reveal their compensation
until required to by law -- when the loan application has been submitted.
The amount of fees and charges that you pay in connection with your
loan will be provided on the Good Faith Estimate that the mortgage
broker is required to provide you under the Real
Estate Settlement Procedures Act.
This disclosure is only an estimate. The final amount
will be disclosed on your HUD-1 or HUD-1A Settlement Statement.
You are entitled under RESPA to request and receive a copy of the
Settlement Statement, with actual closing costs, one day prior to
This is helpful information, but it comes a little
too late to help you in comparison shopping or negotiating with
mortgage brokers or lenders. A better way to compare lending programs
is to use the FTC's online brochure, Looking
for the Best Mortgage.
The advantage to using a mortgage broker is that the
broker can shop multiple lenders. He's not a miracle worker and
can't make someone with a bad credit history magically qualify for
a low interest loan. Think of him more as a personal shopper who
is helping you find a loan that's right for you.
One good way of keeping your broker honest is to shop
rates in your local market using Bankrate. Bankrate's mortgage
search feature will provide you with mortgage rates, points
and annual percentage rates on loans and can be invaluable in understanding
the mortgage market in your community.
If you want to negotiate your best deal with a mortgage
broker, you should spend the time and money to know your credit
score, review your credit report for errors and correct any errors
on your report.
To get a low interest rate, you will need to
put your best foot forward. Knowing your credit score will help
you understand whether you'll qualify for a lender's best
rates. All three of the consumer
reporting agencies can provide you with a credit score along
with a credit report. I think the best choice of the three is to
get your FICO score in conjunction with your Equifax
-- Posted: Nov. 2, 2001