Andrew Vaughey, Know Your Mortgage Fees, and Youll Never Pay Too Much for Your Loan

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Andrew Vaughey, Know Your Mortgage Fees, and Youll 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  Get his
free mortgage finance course at