Can You Negotiate the Fee a Mortgage Broker Charges for a New Mortgage?
Mortgage brokers play a crucial role in the home buying process, often steering potential homebuyers in the right direction with their extensive knowledge and experience. However, a common question among homebuyers is whether it's possible to negotiate the fees charged by mortgage brokers. Let's delve into this topic and explore the key points to consider.
Understanding Fees
Mortgage brokers may charge various fees, including origination fees, processing fees, and others. It's essential to understand what each fee covers to ensure transparency and fairness. An origination fee, for example, is usually the broker's commission for their services, while processing fees might cover the cost of turning your application into a loan.
Research Market Rates
Before negotiating with a mortgage broker, it's crucial to research typical broker fees in your area. Use this information as a benchmark to determine what is reasonable. This will not only help you set realistic expectations but also give you an idea of how the fees compare to those charged by other brokers in your location.
Leverage Competition
If you have quotes from multiple brokers, leverage this information to negotiate. Mentioning that you are considering other options is a powerful negotiating tool. Brokers may be more likely to lower their fees to secure your business.
Ask About Discounts
Some brokers may offer discounts for certain situations, such as being a first-time homebuyer or a repeat client. These discounts can significantly reduce the overall cost of the mortgage, making the process more affordable for you. Don't hesitate to ask about these potential savings.
Negotiate Early in the Process
The best time to discuss fees is early in the process. Be clear about your budget and what you are willing to pay. Early negotiations can save you a considerable amount of money, as the cost of refinancing or re-negotiating later can be much higher.
Consider the Overall Value
While negotiating fees is important, it is equally important to consider the broker's experience, the range of lenders they work with, and the quality of service they provide. A broker with a strong track record and a wide range of lenders can offer you a better deal overall, even if the fees are slightly higher.
Get Everything in Writing
Once you agree on a fee, ensure that it is documented in writing. This will prevent misunderstandings and future disputes. The confirmation should include the fees, terms, and conditions of the agreement.
The FRB Rule on Loan Originator Compensation
A federal rule called The FRB Rule on Loan Originator Compensation, effective since April 5, 2011, governs how loan originators are compensated. According to this rule, the fee is set in consultation with the broker's employer. The loan originator must be supervised by either a mortgage broker, lender, or bank.
The fee is disclosed in Box A of The Loan Estimate. For example, if you have a $200,000 loan and a 1% fee is negotiated, the loan originator would receive $2,000. This fee allows the company to purchase mortgage money at a slightly lower rate (wholesale) compared to the retail rate you will be paying for the life of the loan.
The FRB Rule prohibits loan originators from negotiating a different fee for each customer. This is to avoid subjective pricing, which may lead to violations of federal laws and regulations. Subjective pricing could result in discrimination based on factors such as race, ethnicity, or financial literacy, violating the Fair Housing Act, Fair Lending Act, and the Equal Credit Opportunity Act.
Instead of trying to negotiate individual fees, it might be more advantageous to comparison shop. Apply to three different places: where you bank, with a local mortgage broker, and with a local non-bank mortgage lender. Compare their Loan Estimates and ask for an explanation of how they are paid. Ethical brokers should welcome the opportunity to disclose their compensation and explain the terms clearly.
Conclusion
Negotiating mortgage fees can lead to significant savings, provided you approach the process with the right knowledge and preparation. Understanding the fees, performing thorough research, and leveraging competition are key strategies. However, it's also crucial to consider the overall value and quality of the service provided by the mortgage broker.