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Know Your Mortgage Fees, and You'll Never Pay Too Much for Your Loan
If you buy new windows, you'll not only pay for the windows, you will also pay an installation fee. When you purchase a car, you pay tax, title, assumption fee, etc. Just about every major purchase comes with extra costs or fees, and home loans are no different. Most people think they don't have to pay costs on a loan, because they are paying interest on the loan (they figure this is their fee - a premium on the money). A mortgage, however, does not come free.
While some are mandatory, others are not. Follow these guidelines, and you'll never pay too much for your purchase mortgage or refinance loan. The origination fee -- The fee that bothers people the most is the origination fee, or what some mortgage people call a broker fee. This is often confused with points, but should not be. Points are something completely different. The origination or broker fee is what you pay the loan officer to originate or create and complete your home loan, whether it's a purchase or a refinance. All mortgage people charge them, whether they work for a mortgage brokerage or for a bank.
Remember, if you're told there is not a broker or origination fee, chances are you're paying a higher interest rate, and this is how they're making this fee. The origination fee is the primary way mortgage brokers make money. The company gets the entire fee, and your broker or loan officer gets a percentage of that fee - somewhere between 30 and 65 percent.
So, if your mortgage broker charges you two percent on a $100,000 loan, this is $2,000 for his company or bank and up to $1,300 for him. You may think this is an outrageous amount of money, especially considering that this is just one of the costs you have to pay, in order to complete you loan. It might be, and then again, it might not. It depends on what type of loan you get, how much work is involved in closing it, and the quality of the service you get. Here are a few guidelines on what you should be willing to pay in origination or broker fees.
Bad credit's effect -- If you are a sub prime borrower, or someone with credit problems, expect to pay more - up to $3,000 or $4,000. Remember, sub prime, or non-conforming, borrowers have some type of baggage that makes them difficult to get approved, which is a huge part of the mortgage professional's job. They may, for example, have a recent bankruptcy or foreclosure on their record, or a civil or criminal judgement, tax liens on the property, or very little equity in their home. These are problems that good mortgage professionals can get around, but it takes a lot of time and effort.
I once helped an elderly gentleman on a fixed income refinance his home, and he had 14 liens against his home, all of which had to be satisfied, before his mortgage could be paid off, and he could get a new loan. I had three weeks, and probably 25 hours of time, just clearing these liens. One of them was a defaulted car loan on a car he didn't even have. He owed $3,000, hadn't made a payment in three years, and the bank was still after him. I had to negotiate with the collection agent from that bank, and get them to take $1,800 to satisfy the loan, which I would work into his new mortgage. After many telephone conversations and some very hard selling, they agreed, and I wound up getting it done.
Now, I would have normally charged a minimum of $2,500 (over five percent of the loan amount, in this case) for this type of work, but there was not enough equity in the house to get that much origination in the loan. I actually did it for less than $1,000 ($500 of which was mine), just because I wanted to help this man, who needed the cash he was going to get from the new loan to put a new roof on his dilapidated house. This is just one example of when it's acceptable to pay more in origination fee, even though this man didn't have to do so.
Conversely, let's assume you're refinancing your home in a perfect scenario. You have perfect credit, lots of equity in your home, plenty of cash reserves, and the paperwork is very easy. The loan officer says he can complete your loan in two weeks, most of which will be consumed by the work of other people, such as title agents and an appraiser. This origination should not be much more than one percent of the loan amount and even smaller, if the loan amount is over $150,000. This is a loan that mortgage people refer to as "A Paper." It is very easy to close, and takes very little work, so the loan officer can make his money on volume, by doing lots of these types of loans. I always charged $1,500 or less for an A Paper loan.
So, begin learning your closing costs by finding out what the origination fee is (remember, most of the time it's negotiable). One to two percent of the loan amount is acceptable, unless extraordinary circumstances exist.
Mark Barnes is the author of the new novel, The League, the first work of fiction, based on fantasy football. He is also an investment real estate and home loan finance expert. Learn more about his suspense thriller at http://www.sportsnovels.com Get his free mortgage finance course at http://www.winningthemortgagegame.com
MORE RESOURCES updated Wed. August / 12 / 2020
How to get a low-cost mortgage refinance Bankrate.com
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Mortgage Rates Hit Yet Another Record Low The Motley Fool
Don't let mortgage rates distract you. You should also consider this when refinancing - Fox Business
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Mortgage Rates Today, August 11, 2020 | Rates climb Bankrate.com
Is It Already Time To Refinance Again? Mortgage News Daily
Refi Rates Today, July 24, 2020 | Rates slide Bankrate.com
Rocket’s Refinance-Fueled Blastoff Might Not Last The Wall Street Journal
You might have a tough time getting a 'jumbo mortgage' during pandemic. Here's what to expect - CNBC
How the right questions yield smart mortgage... Kent Reporter
How to Refinance a Jumbo Loan Credible News
Lenders Are Making It Harder To Get A Mortgage. Here’s How Borrowers Can Improve Their Odds - Forbes
What Is A No-Closing-Cost Mortgage? Bankrate.com
Don't make these mortgage refinancing mistakes | Business | swoknews.com The Lawton Constitution
Mortgage denial stats by race: What we can learn | Mortgage Rates, Mortgage News and Strategy - The Mortgage Reports
Mortgage denial stats by race: What we can learn | Mortgage Rates, Mortgage News and Strategy The Mortgage Reports
Bots Help Meet Mortgage Demand Credit Union Times
Mortgage industry faces 'tsunami' of refinancing deals Phoenix Business Journal
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How to save through refinancing KTAR.com
More Wells Fargo customers say the bank decided to pause their mortgage payments without asking - NBC News
More Wells Fargo customers say the bank decided to pause their mortgage payments without asking NBC News
Report: Fewer Homeowners Think Now Is a Good Time to Buy The Motley Fool
Mortgage refinance: Everything you need to know Fox Business
How to get a jumbo mortgage when lenders are scarce Bankrate.com
How to get the best mortgage refinance rates Fox Business
How to refinance your mortgage Fox Business
Just Approved: Run, don't walk to refinance Beaumont Enterprise
How Low Are Mortgage Rates Right Now? Just Look at the Sky-High Numbers From the '80s and '90s - MONEY
How Low Are Mortgage Rates Right Now? Just Look at the Sky-High Numbers From the '80s and '90s MONEY
Is now the best time to refinance your mortgage? Fox Business
10 things to know before refinancing your mortgage Fox Business
Six Ways COVID-19 Has Affected Home Lending whatcomtalk.com
Money Roundup: South Florida GDP plunge worse than national average; Local billionaires made billions in first months of pandemic and more - South Florida - South Florida Business Journal
Money Roundup: South Florida GDP plunge worse than national average; Local billionaires made billions in first months of pandemic and more - South Florida South Florida Business Journal
Sell Rocket Companies: It Is REKT Seeking Alpha
When should you refinance your mortgage? Fox Business
Mortgage refinance applications spike 79% as homeowners rush to take advantage of lower rates - CNBC
Refinancing boom hits Central Coast Pacific Coast Business Times
With Mortgage Rates So Low, Getting a Floating Rate Mortgage Might Seem Crazy. Here's Why I Did It Anyway - MONEY
With Mortgage Rates So Low, Getting a Floating Rate Mortgage Might Seem Crazy. Here's Why I Did It Anyway MONEY
Record number of borrowers can now save on a mortgage refinance as rates drop from coronavirus fears - CNBC
Record number of borrowers can now save on a mortgage refinance as rates drop from coronavirus fears CNBC