The fundamentals of mortgage loans – Part 3

fundamentals of mortgage loansThis post is the third part in the series on mortgages and my experiences:

 

Today I will continue where we left off previously with online mortgage lenders, considerations, and what I learned in the process.

To summarize, online mortgage lenders may actually have storefronts in other states, but are licensed to lend in your state. You can poll the top lenders online through Costco’s website or through BankRate.com. I did both in my search. Having multiple offers allows you to have more flexibility and knowledge in the process.

Most of these lenders offer very generic information such as the rate, term, fees, and credits. I would say that the majority of online lenders had very low or NO lenders fees. Many of these lenders even offered lender credit! Let’s go through these in detail:

Lender fees.

This is the black box in most lending statements. These fees are always convoluted and often masked by terms like origination fees, application fees, processing fees, and underwriting fees. My local lender had all of the above terms. Many of the online lenders had NONE of the fees. This is quite bizarre to see such a wide range of costs. These numbers can run in the hundreds of dollars each, and total in the thousands!

That’s right. Straight out the gate, you can end up spending a few extra thousand dollars depending on which lender you are going through. I asked the online lenders why they can still give borrowers a relatively low rate and have almost no fees, but most of the answers did not seem too convincing:

“We run a very lean operation, and pass on the savings to the consumers.”

“We have a small physical footprint, so our costs are low.”

I also asked for a “Truth in Lending Statement”, which typically outlines various closing costs and fees. One online lender provided a rudimentary form with most of the blanks empty, while the others told me that they no longer provide these statements, given that all loans signed after October 2015 are not mandated to provide one. Instead, there are “Loan Estimate” statements that are provided. However, most of the online lenders were very vague—they all only provided an interest rate plus a certain lender credit given the type of loan requested.

My local lenders were, for some reason, more forthcoming with their expenses. All of them provided me with a “Loan Estimate”. There was some variability in some of the numbers, but certainly gave me a better idea of the closing costs that a mortgage incurred.

The following is a list of common closing fees and my comments:

  • Appraisal fee. This is mandatory, and is a means for your lender to determine whether the property you are purchasing is worth their risk in lending you money. This price is not negotiable as the lender typically chooses the appraiser. There is variability among lenders but I would estimate that it should cost around $500 or less.
  • Title fees. These fees are dependent upon which title company you choose. You can choose which title company to help close the sale. However, depending on how your realtor arranged the sale, the escrow company that handles earnest money may actually be the title company as well. When I placed a deposit of earnest money, the escrow company was the same as the title company. This meant that it would have been very difficult to make other arrangements outside of the predetermined company.
  • Origination fees and Lender fees. This number is negotiable. A portion (or all) of these fees will go to your loan originator as “commission”. Some lenders will be more willing to budge than others on this number depending on how they are paid.

 

What other fees have you seen on your closing cost sheets?

 

 

Photo courtesy of Flickr.

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