Good afternoon Biggerpockets community,
I have a question about my final disclosure on a loan the signed. I purchased a property for $87,000, this is my third investment property. Under my origination charges I have a fee for processing, underwriting and a broker fee. this is the first time I have been charged a broker fee. It came out to 2% or just under $2000. I asked my loan officer about the charges and she said it was to get a lower rate, which I thought would be points. I still have the processing and underwriting fees which add up to $1500. My interest rate is a 4.875% which seems extremely high. I am just curious if this is a very abnormal looking loan. My credit score is in the very high 700s and my debt to income ratio I believe Is solid. I am just starting out and can use some advice.
If you go through a broker, they will charge you a broker fee; this ranges depending on the type of loan and the loan amount, but the higher the loan amount; usually the lower the broker fee percentage.
Unfortunately, your loan officer is not educating you properly on how the broker fee is on the LE. If you'd like, send me a copy of your LE and I will go over it with you. No problem.
To answer the question, many broker are setup with lenders as "lender paid" transactions. What that means is that there is no broker fee on the LE or CD. If the rate we quote is too high we switch to a "borrower paid" transaction. This makes significant changes on the LE or CD and if not explained properly can be confusing.
The bottom line is you are paying a broker either way. The broker is paid by the lender for lender paid and you as the borrower help pay for this by taking a slightly higher rate over the life of the loan. When the broker is paid by the borrower, you pay the broker fee upfront and the result is a lower rate for the borrower.
The ratio is not 1 to 1! E.g. if a broker takes a 1% reduction in commission, that doesn't mean the borrower gets a 1% reduction in rate. Doesn't work like that at all. It varies from lender to lender.
The best thing is that Broker typically have the best rates! Even though there is a fee whether its front end or back end. I rarely get beat on rate, but it does happen. I don't try to compete with rate though. I am all about customer service and giving the borrower exceptional service throughout the loan process.