Learn the little secret that most lenders do not want you to know about: Junk lender Fees.
These fees are hidden in your loan and to the homebuyer seem like must pay fees, but in reality, they are not.
If you ask the right questions from the get-go, you can learn to avoid these fees.
Ask your lender if they have fees
A very simple question, but in all my years as a Loan Officer, rarely asked by anyone.
Homebuyers ask all sorts of questions about the home they are buying to the Realtor, but never ask the lender what they charge.
These fees will increase your closing costs and can make the difference between qualifying or not for your home mortgage.
Ask for a Loan Estimate
In 2015 Congress approved the Dodd-Frank Act that requires integrated disclosure forms for consumers at the time of application and settlement known as the Loan Estimate (LE).
Lenders must give you an LE within 3 days when you give them the following six points of information:
- Social Security Number
- Property Address
- Estimated Value of Property
- Mortgage Loan Amount sought
Notice that your credit report is not on that list, neither is proof of income or proof of funds. Lenders must take you at your word and issue the LE.
When you receive the LE look at the first section: A. Origination Charges.
This lender is charging over $5K in fees, and even though everyone is entitled to get paid for their work, what they are not explaining to you is that they are also charging you behind the scenes.
Mortgage brokers usually charge between 1.5% and 2.5% to do a loan. This charge is blended into the rate that you are getting on your loan and is usually not seen by the home buyer.
This is especially true when the lender is a direct lender like a major lending institution or bank. These charges will never be seen or disclosed to the homebuyer, but they are there.
Mortgage Brokers, on the other hand, do have to disclose how much they are getting paid behind the scenes on the final Closing Disclosures.
Note that this only applies to Mortgage Brokers, direct lenders and banks are not obligated to disclose this.
There are exceptions
Not all loans are created equal, and some loan types do require these fees to be charged up front.
Non-QM loans like bank statement loans, cash flow loans, or foreign national loans most of the time require all points and fees to be charged upfront and not on the back end.
These charges vary from lender to lender and depend on the loan program being used.
Some FHA grant programs or DPA programs also require that these fees be charged up front.
Shop around and avoid junk lender fees
With a loan estimate in your hands, you can now shop around for the best deal.
Lenders will be hesitant to remove these junk fees, but if you have a Loan Estimate you can now negotiate and get the best deal possible.
A little footwork can save you thousands in closing costs. Go out and get those LE’s in writing.