How does a mortgage broker get paid?
It's a fairly simple, complex answer if that makes any sense. You either pay him through points or the lender pays him through a rebate (known in the biz as a yield spread premium). A mortgage broker gets wholesale prices from banks and wholesale specialists that he, in turn, marks up to you. THESE RATES ARE ALWAYS LOWER THAN WHAT THE BANKS THEMSELVES CHARGE THE PUBLIC! Given a certain loan at a certain rate, the lender is willing to either pay or charge the broker for that loan. Example:
| Rate | Cost or (Rebate) to Broker from Lender | Dollar amount on $200,000 loan |
| 6.75% | 1.25 points | $2,500 (Charge) |
| 7.00% | 0.00 points | $0.00 (No charge) |
| 7.25% | (1.25) points | ($2,500) (Rebate to broker) |
So, the lender is charging the broker 1.25% of the loan amount to bring (or originate) a 6.75% loan to the lender. Since the broker has to make money too, he marks that fee up to you anywhere from 1% to 2% more. So, if a broker only charged a one point markup, the final cost to you would be 2.25 points if you wanted a 6.75% rate.
No, you can't. You have to be a licensed real estate broker and meet many other guidelines to be approved to do loans for various types of lenders. And while it may seem there is an unnecessary middleman involved, loan rates by brokers are usually at least as competitive as banks. Brokers shop many lenders to get you the best rate because they're competing with other brokers AND banks.