Before I break into my ever-so-biased opinion on closing costs, I wanted to take a second to welcome all of my new readers. Rumor has it people from all walks of life are now reading. With that in mind, I have decided to use this blog as a forum for good, rather than for evil. My goal is to take my years of experience, my general cynisim, and a little fun thrown in to keep the average guy from getting screwed by their mortgage broker......and to that end....
Closing costs are a simple fact of life when you get a mortgage. Even if it seems like there are barely any costs on your loan, they are there.....trust me! What most people don't know is that certain closing costs are completely negotiable. I will even throw you a bone and give you some negotiation tips that will actually work.
Within three days of applying for a mortgage, the lender or broker is required by law to send you a Good Faith Estimate of Closing Costs. This form outlines all of the fees the lender or broker intends to charge you at the time of closing. I will only cover the most common, and costly fees here. Fees marked with a * are negotiable. I will cover title fees and escrow deposits some other day.
*Origination Fee. This is the broker or lenders fee for doing the loan. This fee is pretty much all profit for the lender. Up to 1% is common and customary, but the less the better. A lender should be allowed to make some money for the work they do, but I have seen up to 3% in the recent past and that is insane!
*Discount Points. This is a fee charged by a lender for reducing the rate on your loan. It would be great if for every 1% you pay up front it would reduce your rate by 1%. Sadly, it's more like for every 1% you pay up front, your rate drops by .375%. If you plan on not refinancing in the next 5 years, these points are a good bet. Ask your lender to give you a few options on this, so that you can compare and figure out what is right for you. You are paying these people a lot of money....they should have to work for it!
*Broker Fee. If your broker is trying to charge you a broker fee and an origination fee, they are just plain greedy. These fees are the same....a broker's profit. Simply put, if you see both fees...either negotiate one of them away, or find someone else to do the loan for you. Greed makes me angry, and it should make you more angry. It's your hard earned money, after all.
*Processing Fee. In theory, I am OK with this fee. It should be from $300-$450. It pays for the people who actually do the real leg-work on your loan. However, if your lender is already charging a steep Origination or Broker fee (over 1.5%), you should ask them to waive this fee.
*Underwriting Fee. If you are working with a broker, most likely this is a fee charged by the lender who is actually buying your loan. If that is the case, this fee is not negotiable. If you are working with a direct lender, (Bank or name-brand mortgage company) just make sure the fee is under $500. Anything more is crazy.
****Application Fee. Unless you are going to your local Credit Union (who may charge a moderate fee to cover their actual expenses incurred), if a broker or other lender is charging you this fee, either ask the lender to waive it, or run screaming to another lender. This fee is pure greed, and 100% profit for the lender.
Appraisal Fee, Flood Certification, Credit Report, Tax Service Fee....these are all fees charged for actual services, and they will not be negotiable. Unless you have a multi-family home, these fees collectively should not be more than $500. FYI......most lenders will make you pay for appraisal and credit report up-front. This is normal, and makes sense......they have to hire outside vendors to do this work, and they will want to be paid whether or not you ever close your loan.
****Yield Spread Premium. Brokers are required to show you this amount, even though this is not a cost paid directly by you at closing. This fee is where a lender will pay a broker a premium for charging you a higher rate. The higher the rate they sell you, the higher the premium paid. So, in the end....you are paying a lot for this fee. This fee is a sneaky bastard, and the broker is not obligated to tell you until closing how much the lender paid them for selling you a specific rate. On your initial Good Faith Estimate, they will usually say "0-3%", and that is perfectly legal. To make sure you aren't getting duped, when you lock your interest rate, simply ask what they are being paid in Yield Spread. Most will be caught off guard by your industry smarts, and tell you the percentage. If the number is more than .50%, ask them to give you some more rate options....you could probably negotiate a lower rate for no extra cost.
I know there is a ton of industry jargon here, but when you are dealing with a broker or lender, they will show you a lot more respect if they know you are savvy! A sharp consumer can probably negotiate away 1-2% of their closing costs......may not seem like much, but on a $200,000 loan, that could be $4000 of your money that you get to keep!
If anyone has any questions on all of this madness, or needs some general advice, drop a comment!
Thursday, July 23, 2009
Saturday, July 18, 2009
Mortgage Morality.....A Rant.....
Picture this.....it's 1950, and you are going to see your banker to inquire about a mortgage. You get dressed up in your nicest suit, to make a good impression. You are a bit intimidated, but you see your banker as an authority figure. You get there, discuss finances, and the banker either approves or denies your request based on your merits, and how likely you are to be trustworthy to repay the debt. Your banker always acted with professionalism, courtesy, and most importantly ethics. They were professionals to be looked up to.
Flash forward to 2006. You want to buy a house, so you email or call a Mortgage Broker. The broker earns his living off of commissions only, so they will go to any length to get you a loan. You discuss finances, and if the broker can't qualify you based on your merits alone, they invent merits for you. "Oh, so you have been working at Taco Bell for 8 months now, correct? Let's say you are a manager, and list your income as.....oh, let's just say $8500/month. No money in checking or savings? No problem.....we'll get you into the house for no money. I would say you qualify for around $600,000 or so." The broker had no concern over whether you could actually afford the house. If you wanted it, by god you were going to get it! They were far more concerned in getting 2-3 points for closing the loan. After all, that could be $18,000 in their pocket for doing not much more than writing a small piece of fiction.
Then the bubble burst........
Mortgage Bankers are now regarded as about as professional as used car salespeople. After spending 15 years in this business, I think that is giving used car salespeople a bad rap. They are dealing with a relatively minor purchase. Your life would not likely be thrown into total upheaval because you bought a shitty car. If you buy a house you can't really afford, it can mess up everything!
Some people say that it's buyer beware, and that people should know what they can and can't afford. I say that those people rely on their Mortgage Bankers to be a guide and a voice of reason. Mortgage Bankers are the gatekeepers to home ownership, and should take this job very seriously. They are highly responsible for the success or failure of the American Economy, and the recent crisis is the proof of this.
Fortunately, many states have adopted licensing and continuing education as a requirement for Loan Officers. This is a step in the right direction, since it will discourage people in it for "a quick buck" from selling loans. The fees are just high enough to discourage the bottom of the totem pole.
Stated Income loans are also a thing of the past, which is great! But a new type of fraud has emerged as common.....Amended Tax Returns. When the loan officer reviews an application and finds out a self-employed borrower does not make enough money, they have them complete a 1040X Amended Return. They give us that as proof of income. I have seen several loan officers so brazen as to have the borrowers file those amended returns (so that they could be verified by an IRS transcript) and leave the borrower with a 10-20K debt to the IRS because of the increased income. Just to qualify for a loan.
As Mortgage Professionals, we MUST take our post seriously, with or without licensing, and remember that we should never put someone into a home we know they can not afford. We should not lead borrowers to do anything to jeopardize their financial situation. We are the providers of the American Dream, but we need to remember not everyone qualifies to live the dream right now. The blood of the economy is on our hands if we are not careful.
Flash forward to 2006. You want to buy a house, so you email or call a Mortgage Broker. The broker earns his living off of commissions only, so they will go to any length to get you a loan. You discuss finances, and if the broker can't qualify you based on your merits alone, they invent merits for you. "Oh, so you have been working at Taco Bell for 8 months now, correct? Let's say you are a manager, and list your income as.....oh, let's just say $8500/month. No money in checking or savings? No problem.....we'll get you into the house for no money. I would say you qualify for around $600,000 or so." The broker had no concern over whether you could actually afford the house. If you wanted it, by god you were going to get it! They were far more concerned in getting 2-3 points for closing the loan. After all, that could be $18,000 in their pocket for doing not much more than writing a small piece of fiction.
Then the bubble burst........
Mortgage Bankers are now regarded as about as professional as used car salespeople. After spending 15 years in this business, I think that is giving used car salespeople a bad rap. They are dealing with a relatively minor purchase. Your life would not likely be thrown into total upheaval because you bought a shitty car. If you buy a house you can't really afford, it can mess up everything!
Some people say that it's buyer beware, and that people should know what they can and can't afford. I say that those people rely on their Mortgage Bankers to be a guide and a voice of reason. Mortgage Bankers are the gatekeepers to home ownership, and should take this job very seriously. They are highly responsible for the success or failure of the American Economy, and the recent crisis is the proof of this.
Fortunately, many states have adopted licensing and continuing education as a requirement for Loan Officers. This is a step in the right direction, since it will discourage people in it for "a quick buck" from selling loans. The fees are just high enough to discourage the bottom of the totem pole.
Stated Income loans are also a thing of the past, which is great! But a new type of fraud has emerged as common.....Amended Tax Returns. When the loan officer reviews an application and finds out a self-employed borrower does not make enough money, they have them complete a 1040X Amended Return. They give us that as proof of income. I have seen several loan officers so brazen as to have the borrowers file those amended returns (so that they could be verified by an IRS transcript) and leave the borrower with a 10-20K debt to the IRS because of the increased income. Just to qualify for a loan.
As Mortgage Professionals, we MUST take our post seriously, with or without licensing, and remember that we should never put someone into a home we know they can not afford. We should not lead borrowers to do anything to jeopardize their financial situation. We are the providers of the American Dream, but we need to remember not everyone qualifies to live the dream right now. The blood of the economy is on our hands if we are not careful.
Job Security....Mortgage Style!
I have been asked more times than I can possibly count why I have changed jobs so many times. As a 15 year vet of the mortgage world, I have had more jobs than I could ever possibly remember. 20. 25. Not sure anymore. All I know is that I keep a resignation note on standby at all times. I have even resorted to a post-it-note on my monitor before. Anyone inside the mortgage industry totally understands this. People in the outside world can’t even comprehend a yearly, bi-yearly, or tri-yearly job shift. The reason for the constant change……..everyone in this industry is insane! So, in that spirit, here are the 5 most common (or interesting) reasons I have had to change companies over the last 15 years…..in no particular order:
1) The Employer laid me off due to “restructuring.” I can count at least 4 of these incidents. 2 of them were with the same employer. It kind of blows your mind when the person laying you off reaches out to shake your hand at the end of the conversation. Makes you want to grab their hand and yank their arm right out of it’s socket and then say “Good luck to you. I hope you know this isn’t personal.”
2) Discovering that my employer was really a mob front. Yup….just like I said. When your company doesn’t make any money, the owner doesn’t care that it’s not making any money, and he regularly closes loans using his own funds and virtually no documentation; this might be a tip off. When customers call the office asking for the owner panicking because their private mortgage is 1 hour late and begging for mercy, it’s time to go! “Hey Vito, we gotta go do that…um…thing we was talkin’ about.”
3) Horrible working conditions. Ok, let’s get real…..the mortgage universe is not a sweat shop in Bangladesh. But anyone who has worked for Kountryfried (names changed to protect the innocent) might feel some empathy for those kids in far away lands making tennis shoes. “Great pay, and potential for large bonuses” is codespeak for “7am-9pm, 6-7 days per week with a 15% chance of a $200 bonus monthly.” If it was presented like that from the start, who would actually sign up for that?
4) Violence. Chalk up 2 jobs to this one. Both were situations where the boss was a bit more volatile than should be appropriate in a workplace. Or in a prison cell. I have had an FHA 203K file thrown at me, followed by a door slam on my office so hard it broke the surrounding wall….even bent the metal studs in the wall. I have also had a boss get within 1 inch of my nose while he was yelling at me. Personal space is very important to me, and I’m sure to most of you. Natural instinct when anyone unwelcome violates the magic bubble is to beat them within an inch of their life, right? Is that just me? Good thing I have a little self-control. It’s just easier to quit.
5) Better Opportunity. Ok, really? I always tell myself when I use this one that it’s true. It never is. The proverbial carrot is always dangling on the end of the stick for all mortgage people. Let’s get this straight people……Money makes people very volatile and insane. Mortgages are money. Clients are insane, which makes loan officers and realtors insane, which makes processors and underwriters insane, which make managers and owners insane. The insanity does not filter out as it goes uphill. It grows exponentially. This is a universal flaw of the mortgage industry. People do crazy things when they themselves are crazy. They falsify documents, they scream for no reason at all, they talk to themselves in the third person….and then answer themselves also in the third person, they wear nicotine patches on their forehead while they are smoking 2 cigarettes at a time. Simply put, it does not matter if you work for Wells Fargo Corporate Office or Shady Joe’s Mortgage Barn…..your direct supervisor will always be insane. The better a job sounds during the interview, the worse it will probably be in reality.
I want to hear the most creative way any of you have ever quit a job. Anyone use a skywriting company, stadium scoreboard, tattoo, or shaving cream to get the message across? Chime in!
1) The Employer laid me off due to “restructuring.” I can count at least 4 of these incidents. 2 of them were with the same employer. It kind of blows your mind when the person laying you off reaches out to shake your hand at the end of the conversation. Makes you want to grab their hand and yank their arm right out of it’s socket and then say “Good luck to you. I hope you know this isn’t personal.”
2) Discovering that my employer was really a mob front. Yup….just like I said. When your company doesn’t make any money, the owner doesn’t care that it’s not making any money, and he regularly closes loans using his own funds and virtually no documentation; this might be a tip off. When customers call the office asking for the owner panicking because their private mortgage is 1 hour late and begging for mercy, it’s time to go! “Hey Vito, we gotta go do that…um…thing we was talkin’ about.”
3) Horrible working conditions. Ok, let’s get real…..the mortgage universe is not a sweat shop in Bangladesh. But anyone who has worked for Kountryfried (names changed to protect the innocent) might feel some empathy for those kids in far away lands making tennis shoes. “Great pay, and potential for large bonuses” is codespeak for “7am-9pm, 6-7 days per week with a 15% chance of a $200 bonus monthly.” If it was presented like that from the start, who would actually sign up for that?
4) Violence. Chalk up 2 jobs to this one. Both were situations where the boss was a bit more volatile than should be appropriate in a workplace. Or in a prison cell. I have had an FHA 203K file thrown at me, followed by a door slam on my office so hard it broke the surrounding wall….even bent the metal studs in the wall. I have also had a boss get within 1 inch of my nose while he was yelling at me. Personal space is very important to me, and I’m sure to most of you. Natural instinct when anyone unwelcome violates the magic bubble is to beat them within an inch of their life, right? Is that just me? Good thing I have a little self-control. It’s just easier to quit.
5) Better Opportunity. Ok, really? I always tell myself when I use this one that it’s true. It never is. The proverbial carrot is always dangling on the end of the stick for all mortgage people. Let’s get this straight people……Money makes people very volatile and insane. Mortgages are money. Clients are insane, which makes loan officers and realtors insane, which makes processors and underwriters insane, which make managers and owners insane. The insanity does not filter out as it goes uphill. It grows exponentially. This is a universal flaw of the mortgage industry. People do crazy things when they themselves are crazy. They falsify documents, they scream for no reason at all, they talk to themselves in the third person….and then answer themselves also in the third person, they wear nicotine patches on their forehead while they are smoking 2 cigarettes at a time. Simply put, it does not matter if you work for Wells Fargo Corporate Office or Shady Joe’s Mortgage Barn…..your direct supervisor will always be insane. The better a job sounds during the interview, the worse it will probably be in reality.
I want to hear the most creative way any of you have ever quit a job. Anyone use a skywriting company, stadium scoreboard, tattoo, or shaving cream to get the message across? Chime in!
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