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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 Sat. May / 21 / 2022
Should I refinance my mortgage now? FOX 13 Seattle
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Today's Mortgage, Refinance Rates: May 8, 2022 | Rates Will Likely Remain Above 5% - Business Insider
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3 Reasons to Refinance Your Mortgage Despite Rising Rates The Motley Fool
Mortgage and real estate news this week: Affordability squeeze tightens, and refinancing must-knows - msnNOW
Mortgage and real estate news this week: Affordability squeeze tightens, and refinancing must-knows msnNOW
What is mortgage recasting and why should you do it? Fox Business
Pros and cons of an adjustable-rate mortgage (ARM) Bankrate.com
FHA 203(k) Renovation Mortgages: Requirements, How They Work Business Insider
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New mortgage refinance programs from Fannie Mae and Freddie Mac are expanding to reach more homeowners - CNBC
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20-year mortgage refinance rates fall, giving buyers savings opportunity | March 16, 2022 - Fox Business
20-year mortgage refinance rates fall, giving buyers savings opportunity | March 16, 2022 Fox Business
Today's refi rates move higher – May 9, 2022 Bankrate.com
Today's Mortgage, Refinance Rates: May 13, 2022 | Rates Increase for the Second Week in a Row - Business Insider
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Today's Mortgage, Refinance Rates: May 3, 2022 | High Rates Mean Smaller Budgets for Homebuyers - Business Insider
Today's Mortgage, Refinance Rates: May 3, 2022 | High Rates Mean Smaller Budgets for Homebuyers Business Insider
Should you refinance your mortgage now? Consider these factors The Seattle Times
Today's Mortgage, Refinance Rates: May 16, 2022 | Rates Have Increased Over 2% Since Last Year - Business Insider
Today's Mortgage, Refinance Rates: May 16, 2022 | Rates Have Increased Over 2% Since Last Year Business Insider
3.8 million homeowners would still benefit from refinancing amid rise in mortgage rates, says Black Knight - Fox Business
3.8 million homeowners would still benefit from refinancing amid rise in mortgage rates, says Black Knight Fox Business
Jumbo Loan Refinance Guide | 2022 Rates and Guidelines The Mortgage Reports
Still time to lock in a lower rate: Today's 30-year mortgage refinance rates fall | Feb. 9, 2022 - Fox Business
Still time to lock in a lower rate: Today's 30-year mortgage refinance rates fall | Feb. 9, 2022 Fox Business
How to refinance your mortgage, a step-by-step guide The Washington Post
Survey finds 74% of homeowners haven’t refinanced despite historically low mortgage rates - Bankrate.com
Survey finds 74% of homeowners haven’t refinanced despite historically low mortgage rates Bankrate.com
Today's Cash-Out Refinance Rates Fox Business
Should You Refinance Your Mortgage in 2022? The Motley Fool
After Losing Her Home in a Fire, This Teacher Needed a Fresh Start. A Mortgage Refinance Helped Her Do It - NextAdvisor
After Losing Her Home in a Fire, This Teacher Needed a Fresh Start. A Mortgage Refinance Helped Her Do It NextAdvisor
Plunging Mortgage Rates Mean Refinancing Is Back on the Table for 2 Million Borrowers - The Motley Fool
Plunging Mortgage Rates Mean Refinancing Is Back on the Table for 2 Million Borrowers The Motley Fool
Cash-out refinance vs. no-cash-out | What's the difference? The Mortgage Reports
Trump Tower scores mortgage $100M refi The Real Deal
Mortgage Rates Increased to 3.27% Last Week. Here’s What Experts Forecast Amid Rising Inflation and COVID Cases - NextAdvisor
Mortgage Rates Increased to 3.27% Last Week. Here’s What Experts Forecast Amid Rising Inflation and COVID Cases NextAdvisor
Mortgage and real estate news this week: Utility bills rise, and refinancing must-knows - Bankrate.com
Mortgage and real estate news this week: Utility bills rise, and refinancing must-knows Bankrate.com
15 of the best mortgage refinance companies for 2021 Fox Business
VA Loan Refinance Options | 2022 VA IRRRL and Cash-Out The Mortgage Reports
Mortgage Refinance As An Inflation Hedge Surfky.com
What Is a Mortgage Refinance? The Motley Fool
Can You Refinance A VA Loan? Zing! Blog by Quicken Loans
What Is A CEMA Loan? A Quick Guide For NY Homeowners Zing! Blog by Quicken Loans
Unemployed and unable to refinance Marketplace
Mortgage refinance: Everything you need to know Fox Business
Best mortgage refinance lenders in 2022 Bankrate.com
The cost to refinance a mortgage: What to expect | Mortgage | Chase Chase News & Stories
Which Type Of Mortgage Refinance Is Best? Zing! Blog by Quicken Loans