Mortgage brokers are individuals who take the guesswork out of shopping for a mortgage. They are connected with certain lenders and work hand in hand with them to offer mortgage rates at a more wholesale level. Mortgage brokers take the needs of their clients and try to find the best deal for them. They do this not out of the kindness of their hearts, of course. Every mortgage broker charges a fee. Should you decide to work with a broker to try and make the home buying process a little easier, you will likely need to
sign a disclosure form presented by your mortgage broker. Don’t forget to do your homework and calculate your mortgage payments (e.g. by using a mortgage loan calculator).
Mortgage brokers provide the disclosure letter signed by you and by them. It defines their relationship with you and tells you what to expect of them. In many cases, what is not clearly defined is what their mortgage broker fee will be. If the broker fee is defined, it is rarely in plain numbers. Typically, it will be a percentage of your purchase amount. Sometimes this disclosure will read a percentage or a range of percents, say from three percent to six percent. So until you are closing on the home, you may not know which end of the spectrum your broker is using to charge you. What is also not included is the amount of those fees paid by you, your lender or by both of you. Knowing this can be very helpful information when negotiating settlement costs with your lender.
Ideally, any fees charged by a mortgage broker would be disclosed, whether it is a flat fee or a percentage of the purchase. Mortgage brokers should spell out what they are paid and how it may influence overall settlement costs so that you are sure to get the most out of your money. Of course, if this were their practice it would affect the way they make money. Keep in mind, though, that paying a mortgage broker fee may get you a lower rate, but maybe not as low as using that fee amount to pay points and buy a lower rate. If you are working with a mortgage broker make sure to get absolutely the best deal for the fee amount you will be paying him or her. Inquire about it up front, before you sign your disclosure.
Some states require full disclosure of mortgage broker information so that buyers have complete awareness of the contract they are entering into. Why is this not the practice in all 50 states? Since federal regulations mandate a Truth in Lending disclosure, however useless that may be, why not extend that to require a disclosure of mortgage broker fees and who is allowed to pay them (borrower, lender)? It only seems fair since it is also a cost associated with purchasing a home.