Mortgage Broker Basics
A mortgage broker works as an independent broker who brokers mortgage loans for people or companies on behalf of those seeking finance. A mortgage broker earns a commission on each loan they broker, so it is in their best interest to find and recommend the most profitable loans for the clients. Mortgage brokers can be found on the Internet, in print ads and through real estate agents. There are many online mortgage brokers. Some mortgage brokers work directly with clients, while others work on an independent basis.
Working directly with a client requires a mortgage broker to do the research necessary to assess whether or not a given lending institution will be a good choice. The mortgage broker needs to understand whether the potential lending institution is a stable financial structure that is able to withstand economic cycles. The mortgage broker must also know whether the business is in good enough shape to offer an attractive loan package. Finally, the mortgage broker has to assess whether the prospect of working with the lending institution is a good one. The final factor, the mortgage broker will consider before recommending a loan to a client is the fees that will be charged by the lending institution.
There are mortgage brokers in all areas of the United States. Some of these brokers have been regulated by the Department of Housing and Urban Development’s Office of the Inspector General. These mortgage brokers are either required to be licensed by the regulatory agency or are otherwise mandated to obtain pre-approval for any loans they provide. A few states require their mortgage brokers to be licensed by the Department of Business and Professional Regulations. Many mortgage brokers have complied with these state regulations, but others have not.
Fees charged by the mortgage lender are referred to as underwriting commissions. These commissions vary between different mortgage lenders but are usually fairly standard. Mortgage brokers receive a bonus when their clients successfully complete a mortgage loan application. This bonus is calculated by adding the cost of loan origination (broker fees) and the cost of referral (payroll and other miscellaneous charges of the lender). In most cases, the mortgage broker will receive a commission of two or three percent of the total cost of the mortgage loan. However, some brokers may charge up to ten or twelve percent of the closing cost.
Brokers also receive commissions on the sale of servicing loans. Most borrowers pay a servicing fee to the mortgage broker, which is then paid to the lender after the loan closes. These commissions are referred to as mortgage brokers may also receive bonuses for referrals, which means that they earn a bonus for referring new borrowers to the lender.
All borrowers need to know what their rights and obligations are when dealing with mortgage brokers. Although most brokers are required by law to disclose their fees, they are not required to tell borrowers who they work for. Also, they are not obligated to tell borrowers about the underwriting process or any aspect of the loan. This means that borrowers need to ask the broker plenty of questions in order to learn more about what they are being charged. The bottom line is that all borrowers should be aware of what lenders are charging and what fees they will be paying, especially if they have already applied and been accepted with a particular lender through an underwriting process.