Q: Is it customary for a mortgage broker to ask for a "retainer" fee before finding funding for you? I do not understand why the broker cannot attach this fee onto the back end of the loan and get paid at closing. Also, if this fee is customary, does the broker still get paid any points at the closing? –Anonymous in Greensboro, N.C.
A: Do I know every single relevant detail of your situation? No, absolutely not. But what I do know is that I have never, ever heard of a mortgage broker charging a retainer to find a home loan for a borrower. I hate to give extreme answers, though, so I asked around my circle of contacts.
In fact, I sent an email to my most trusted mortgage adviser — in the business for nearly two decades — and her response included the following: "I have never heard of any kind of retainer fee." "He’s a loan officer, not an attorney." And, the ultimate: "I wouldn’t pay it."
So here’s the deal: I was not able to find a single, reputable mortgage broker or company with an online presence that charges an advance "retainer" fee just to look for a loan.
Mortgage brokers are customarily paid at closing — the idea being that their job is not only to find you a loan, but also to process your loan application, serve as the liaison between you and the bank, and to safely chauffeur you and your mortgage to and through closing.
That is, they are paid on performance, not hourly. The mortgage broker’s commission is generally called an "origination fee," and a borrower can reduce his or her interest rate by paying advance "discount points" or "points" (points are also paid at closing, but they go to the bank itself, not the mortgage broker).
Mortgage brokerage processing staffs and other expenses are also paid at closing, but can be labeled variously processing fee, document fee, recording fee and the like. But, again, these are all paid at closing.
With that said, there are a number of fees that legitimate mortgage brokers might ask you to pay in advance, to cover expenses:
Appraisal fee: Most lenders now collect this fee in advance, after you are approved for a loan and get into contract on a house, but before your transaction closes. This fee runs anywhere from $350 to $500 or more, depending on the area and the size and type of the property.
Application fee: Some online lenders charge an application fee, and many lenders now ask applicants to pay advance credit report fees. These range from $25 per mortgage applicant for the credit report fees to as much as $500 for an application fee on a very large loan.
Rate-lock extension fee: One mortgage broker did say it used to be occasionally done to charge an advance rate-lock extension fee of 1 percent of the purchase price of the loan when it was clear at the time the application was submitted that the interest rate would need to be locked for a very long time, like 90 days or more. However, she said she hadn’t heard of anyone doing this in years.
So my not-so-short answer to your question is no — it is not at all customary for a mortgage broker to charge a retainer before finding and securing a home loan for you. Not at all. Mortgage pros customarily get paid at close of escrow, not before.
In fact, I’d advise you to run, not walk away, from the broker who wants this retainer. Your next stop should be to your colleagues and relatives, to collect their referrals to the mortgage brokers they’ve personally worked with and can vouch for.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
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