Brokers do have fees that they charge. They are called Loan Orgination Fees or Mortgage Broker Fees, same thing just different name. They charge from 1-3% on the loan amount.
There is also what you call a YSP, Yeild Spread Premium. This comes from the lender that they are getting the loan approved from for their client. It does not come out of the borrowers pocket or their loan, but make sure and ask the Broker how many points they are taking off the back.
A Broker can request either no points,par, or up to 3 points on the back of your interest rate. It is not illegal but you need to be educated. My brother-in-law is an investor in real estate for more than 15 years and he will not pay more than 1 point on the back of the interest rate. Example; a Lender will tell the Broker that the rate will be 5.75% and that with 1 point on the back will make the rate now at 6%. It will be about a $20 difference in your payment each month.
There are Brokers that will charge you 2% and give you the par rate from the Lender. I am a Mortgage Broker and I charge 1% on my loan fees and I usually take 1 point on the back and sometimes none at all. The reason why I choose not to do 2%, because that will come from the borrowers loan. I would rather have my client get an extra 2-4 grand back instead of nothing.
Your Broker has to disclose the YSP to you in the intial 1003 that you sign with them before the final documents are drawn up from the Lender. The only exception to that is if the Broker is using one of their own bank lines from their company, an in house bank.
If they do not disclose the YSP in the original 1003 and then disclose it in the final, by law and compliance, the YSP is given to the borrower and not the Broker. Make sure you ask what bank/lender they got the rate from when you sign the intial 1003. Make sure that you ask on the final signing of the 1003 if it is the same bank/lender. If it is not the same lender, then it would not be illegal.
Remember to always ask about everything in your documents that you sign. If you feel that your Broker is not being honest with you, you DO NOT have to sign any documents. They only thing that a borrower is requried to pay is the Appraisal Fee; that is by law.
And yes, it does come out of closing time.