Has anyone found a lender that doesn't charge a 1% origination fee? We have excellent credit, have been at our jobs for quite some time and only plan to borrow less than 50% of the value. We're as low risk as it gets.
Yes, our local credit union doesn't charge origination fees.
Yes, it's possible to get lower. Try some local community banks in your area. They are often more willing to negotiate on fees, particularly if you're willing to move other aspects of your business like checking accounts, etc...
But as a banker myself, just be aware origination fees are important revenue sources to banks, esp. with rates pretty low and margins being compressed in a lot of ways. That's great that your credit is good and you have good income. Personal liquidity is also important. The more you have the more likely the lender is to negotiate as well.
Suntrust removed it for us. But that may just be a deal our loan officer has.
I negotiated between two banks, and the one we're going with dropped it to 0.5%, and then also dropped our construction loan interest another .25%.
Make sure they did not raise the annual rate when they dropped the origination fee.
If they held the rate constant the APR should have gone down when the origination fees decreased
Yes they have to make money somewhere. So if they are not charging you an origination fee, they are getting on the backend by offering a slightly higher rate. If the rate did not change, that probably means they were already getting something on the back end. No matter how awesome you look on paper, no bank is going to lend money for nothing up front (either origination fee or higher interest rate).
I could not find a single credit union in my area (California) willing to do construction loans. I did find US Bank which will work no matter where you are located, and Umpqua Bank if you are in their area.
Also, if you have an existing relationship with Wellsfargo they have some options as well.
Thanks for all of the replies. My primary frustration with the 1% is that when we were talking about a loan for a resale, the fees were next to nothing and they got their money on the interest rate. When we started talking about a construction loan, the fees skyrocketed. I understand there is more involved such as the multiple inspections for the draws, etc but they charge for those as well.
"When we started talking about a construction loan, the fees skyrocketed."
They know the loan is going to be payed off quickly, so a higher rate is not going to generate much profit.
Construction loans are also not sold into the secondary mortgage market
The ban hold them for their brief life.
I known that I don't understand construction loans very well but we're talking to them about a construction to perm loan whereby they convert it to a 15 or 30 yr loan at end of construction in which they would earn the interest.
Well I locked at 4.1 which I thought was good without an origination. It is a CP loan. We can float down during the build if rates go any lower.
It is .25 percent higher than Suntrust normal apr. The reason being is CP loans are higher rick.
Meant risk not rick.
It is all about the risk, however as I mentioned there are banks that are offering loans without the 1% fee.
However, I can't find a single bank in my area that will do a 30 loan, they all convert to ARM which then need to be refinanced into a 30 year loan... Oh well...
exmomof3 (My Page) on Thu, Aug 2, 12 at 19:18
...My primary frustration with the 1% is that when we were talking about a loan for a resale, the fees were next to nothing and they got their money on the interest rate. When we started talking about a construction loan, the fees skyrocketed. I understand there is more involved such as the multiple inspections for the draws, etc but they charge for those as well.
It IS very confusing!
& they want you to sign your life savings & not make it clear to you either!
But from our experiences in the industry, here are some answers on why there is a 1% origination fee for you & others (mentioned above by some):
1) The O-fee = what they charge you for taking out a loan & what others charge the lender to buy your loan in the future once it perms up (forward commitment).
2) Serves as a risk adjustment component because a CP is ultimately the riskiest loan these days to make. It's also the most complicated to administer & requires a lot of hands to touch on so in a consolidating industry, most Banks are getting out or already out.
3) Closing costs = what lender pay others to get things documented.
4) More origination % you pay - lower rate you get.
5) Way around #4 is to have @ least 740+ FICO score & >25% down payment & no subordinate financing + be aiming @ a permed loan that is eventually sellable to Freddie or Fannie. This is also called the best execution rate & is a no-cost rate (misleading because it doesn't mean closing FEES in #3)
"we're talking to them about a construction to perm loan whereby they convert it to a 15 or 30 yr loan at end of construction in which they would earn the interest."
ONLY if you choose to convert.
It is not required, but is an option for you.
If you choose to NOT convert with them, they still want to make some money.
I guess I just need to ask more questions of the lenders because it was presented as a one-time closing that converts to a 30 yr fixed at the end of construction. I would understand the fee if they weren't going to make money on the fixed rate 30 yr term but the program wasn't presented as if I have an option.
In all one time close, you still have to MODIFY the loan at ~30-60 days out from the end of construction.
It doesn't automatically convert. It is misleading in a sense that you do have to modify AND lock in your rate because NO lender will lock in a rate with you 6-9 months out with out charging you some hefty commitment fees.
Essentially, there is NO mortgage yet per se during construction.
They can't sell your line of credit which is what is funding your construction.
By definition, a construction loan is a mortgage, just for a shorter term.
As a private portfolio mortgage lender in Ontario, in the past I've made a number of secondary short-term construction loans. As mentioned earlier in this thread, the fees are the bulk of the return. You're not holding the loan for long enough for interest rates to matter much. More important, psychologically, most borrowers pay more attention to rates than fees.
We dropped out of that market long ago as I figured no amount of fees would compensate for the risk for a small private lender.
Trying to get construction financing now for my own home, the lenders advise me: "Fuggedaboutit."
So if I make the plunge (again) it's liquidate our investments. Once it's built, institutional lenders are happy to take the reduced risk.
"a construction loan is a mortgage, just for a shorter term. "
A VERY short term, and very high risk.
Partially completed houses do not have that much value