You might be familiar with the concept of the middleman. If you’ve ever shopped for insurance, chances are you’ve encountered an insurance broker. Buying your clothes at a retail store instead of directly from the manufacturer also involves a middleman. When you’re shopping for a mortgage, a mortgage broker acts as a middleman, too, pairing you up with mortgage lenders. Usually, buying direct saves you money, whether you’re in the market for insurance, clothes or a home. Don’t let excessive mortgage broker fees eat into your savings or keep you from buying.
Wholesale vs. retail
Just as a retailer pays a much lower price for a piece of clothing than you pay for it at a store, a mortgage broker typically gets a much lower price for a home loan than what he or she passes on to you. The broker sees the wholesale cost of the loan and then tacks on fees before presenting you with the retail price.
Good faith estimate
When you apply for a loan, the lender or broker will give you a good faith estimate of the fees you can expect to pay, which include the mortgage broker fees, origination fees and any other costs on top of the monthly mortgage payment and insurance, notes the Consumer Financial Protection Bureau. Some of the fees might change by the time you close on the loan, while others are fixed. Receiving a good faith estimate from a broker gives you the insight to avoid being charged way too much.
Review the fees on the estimate carefully and ask the broker about anything that stands out or seems very high. A broker might be willing to negotiate with you and lower the amount of certain fees — such as the broker fee, courier fees and administrative fees — so that she doesn’t lose your business.
Remember: You aren’t obligated to move forward with the mortgage at this point; you can decide not to work with a lender or broker if the fees are higher than average. In Atlanta, and the rest of Georgia, the average broker, originator and lender fees were more than $1,000, according to Bankrate’s 2014 Closing Costs Survey.
Skipping the fees
If you’re interested in skipping closing costs altogether, you might consider working with a lender that offers no closing costs loans. Instead of paying up front, you pay a slightly higher interest rate, and depending on your plans, it can save you money immediately and in the future.
It pays to be a savvy shopper when looking for a mortgage. A broker can take the hassle out of comparison shopping, as she will do the work for you, but the higher fees you pay might not be worth the benefit. The best way to avoid excessive broker fees or high closing costs is to work directly with a mortgage lender. No matter what you decide, just make sure that high broker’s fees don’t eat into your home buying dreams.
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