Mortgage Broker Fee

[theresa d]

taxpayer paid mortgage broker fee of 1% of mortgage proceeds at closing. are these deductible as points?

[Deltax]

taxpayer paid mortgage broker fee of 1% of mortgage proceeds at closing. are these deductible as points?

Loan origination and Loan discount are the only items deducted as points. Brokers fee is not deducted as points

[jainen]

It doesn't matter

It doesn't matter what it's called. It is considered points if it is calculated as a percentage of the loan amount. Whether it is deductible or not depends on the amount and purpose of the loan and some other factors.

[theresa d]

To Purchase Home

janiene-fee was to purchase primary home. it was a fee to obtain the mortgage. i think it would qualify as it was a cost to obtain mortgage? not reported on 1098 but on closing statement hud-1

[Unregistered]

Jainen
Isn't the broker's fee a charge for the SERVICE that an individual earns for bringing a borrower(the buyer) to a lending firm? It is not pre-paid interest & would not be included in any APR calculation.

Points must be computed as a % of the mortgage but I don't believe the converse is true - namely, because a fee for service is calculated as a %, it is then equivalent to points.

[jainen]

prepaid interest

Although a loan originator does provide some service such as assembling the loan package, those costs are covered by processing fees. The loan origination fee is a sales commission based on the size of the loan. It can be earned by a broker or a bank officer, whoever makes the sale. In the old days the lender paid it out of the loan's earnings. Some clever sales rep figured out that if the borrower pays it up front, the lender could accept a lower yield. With a lower interest rate, the monthly payment was less so the borrower could qualify for a bigger loan and the broker got a bigger commission. The banks that offered these buy-downs had the lowest rates and got the most business, and everyone was happy. That's why loan origination fees, also called "points," are deductible as prepaid interest.

[Unregistered]

There is no doubt that true "loan origination fees" are deductible as points. They are charges for the use of money and are calculated in the APR.

The broker's fee is a commission for SERVICES and not for the use of money. The brokers fee goes to the broker as a commission. The purpose of the charge is to compensate the broker, not to lower the interest rate.

[jainen]

The same

>>The brokers fee goes to the broker as a commission<<

What do you have against mortgage brokers? On a no-points loan, the broker gets paid the old-fashioned way, except now it must be disclosed on the settlement statement. That is required because the buyer actually pays it in the form of higher interest over the life of the loan.

There is little difference between a broker and a "direct lender" for most loans. They all get bundled and sold as securities on Wall Street.

Can you name one way that a broker's fee is different from a loan origination fee earned by a bank loan officer? The calculation is the same, the payment mechanism is the same, the service is the same. The same. Anyway, that's how the tax code treats them. The same.

[S T]

Brokers Fees

I have seen only one Broker Fee that was added into the 1098 by the lending institution as "points"

So Jainen, you are saying that the loan origination fee, loan discount fee (sometimes we see both and it is clearly a percentage of the loan) AND now the brokers fee if it is calculated on a percentage and separately stated on the HUD statement, we can deduct under "points"?

Sandy

[Bill Tubbs]

One vote &quot;yea&quot;

So Jainen, you are saying that the loan origination fee, loan discount fee (sometimes we see both and it is clearly a percentage of the loan) AND now the brokers fee if it is calculated on a percentage and separately stated on the HUD statement, we can deduct under "points"?

Well, I'm not Jainen, but my vote is "yea". But most of my clients fail to bring their closing statements with, so I never run into this...

Bill

[Unregistered]

Is the "broker's fee" calculated in the APR? If yes, then it would be deductible. BUT, if not, and I believe that is the case in all the situations I've seen, it is not deductible as it is not for the use of money.

[Bees Knees]

You have to look at the rules that define deductible points. Do not just assume that since it is calculated as a percentage of the loan, it is now all of a sudden points.

TTB, page 4-12 lists 9 things that it has to be in order for it to be considered deductible or amortizable as points. The percentage of the loan rule is only one out of 9 requirements.

[Matt Sova]

Deductible

Absolutely. If you look at the 9 items in TTB page 4-12 I would say none of the items are an issue.

Bill, if your clients do not bring in their HUD 1 statement they are missing some deductions. First is the possibility of points being paid, the second are the property taxes reimbursed to or by the seller of the property.

[theresa d]

thanks everyone

thanks for all the responses. i'm going with the fees as deductible. i think they fit the criteria -9 points in ttb.

[Bill Tubbs]

Agree

Bill, if your clients do not bring in their HUD 1 statement they are missing some deductions. First is the possibility of points being paid, the second are the property taxes reimbursed to or by the seller of the property.

I always tell them to bring the closing papers, but more often than not, "Oh, I forgot them", or "I can't find them".

Property tax proration -- no problem with that -- look at last year's property tax and prorate by number of days.

Bill