Refinancing

petunia_growMarch 31, 2009

Can someone please tell me what extra fees to look out for when I close on my home loan. The local news here was telling me mortgage companies are adding extra fees into home loans. I would like to be educated before I close.

Thank you

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nutbunch

If you already in the process, you should have received a good faith estimate of the fees you will need to close the loan. So not sure about your question.

It's never a surprise.

I've been checking around and the loan fees are averaging at least 1 point (.01 x loan amount) Some places like Quicken loan are around 2.5 points. Sam with my credit union. The banks are 1) overloaded with refinance requests and want to discourage more applications and 2) trying to get the interest up front that they won't get with the lower interest rate on the loan.

Good Luck

    Bookmark   April 1, 2009 at 1:17PM
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dave_donhoff

Hi Petunia,

Can someone please tell me what extra fees to look out for when I close on my home loan. The local news here was telling me mortgage companies are adding extra fees into home loans. I would like to be educated before I close.

I know (unless I hallucinated) that I answered this Q... maybe at the other board?

In any case... the media is hugely ignorant about financing in general, and ESPECIALLY mortgage financing in particular. Even the so-called "experts" (you know, Suze Orman, the MSNBC girl, Dave "the evangelist," Dave "the stockbroker," et al.) are generally way over their head when trying to talk about safely navigating the mortgage process.

I'm "Dave the Leverage Planner..." I've specialized and advised on the intricacies of real estate financing for over a decade now... there are very few who know more about these details than me (and ZERO of them are out in the media!)

Fees pay for all the various inescapable services, and you *ALWAYS* pay *ALL* of them... the only question is whether you pay less up front in cash, or more over time in higher interest rates.

Here's what you want to know about structuring your discount points;
http://www.fool.com/imo/2001/a011213.htm
'Points' explained

Here's what you want to know about the various fees that may be disclosed up front on a Good Faith Estimate.
http://www.nobullmortgage.com/closingcosts.asp
Closing Costs explained

Luck!
Dave Donhoff
Leverage Planner

    Bookmark   April 1, 2009 at 3:17PM
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stargazzer

The only thing I was surprised with when I bought the home before this was the $15. a month insurance charge that was in my mortgage payment. I found this after a year living in my home. I called and asked about it and found out I was paying for insurance to insure the mortgage company if I defaulted on the loan. The rep said they would do a drive by and look at our home. They did and saw we had made improvements such as landscaping, a fence, etc., and was willing to drop the insurance.

    Bookmark   April 2, 2009 at 11:41AM
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qs777

But many of the fees on the Good Faith Estimate are "junk fees." Are we basically doomed to either pay these or incur a higher rate? I have always been able to get rid of these before but in this economic climate I guess I won't be able to. I hate paying for things which are the cost of doing business (and which are easier now than years ago when there wasn't so much technology) and are reflected in the rate to begin with. I definitely make the loan officer's job as easy as possible by having all of my paperwork ready at the outset and, if they ever need anything else, they typically receive it within minutes of their request. Do I have any hope of not paying junk fees?

    Bookmark   April 2, 2009 at 2:14PM
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dave_donhoff

Hi qs777,

What "junk fees" are you specifically referring to? And how will your rapid provision of your required documents prevent the need for those services?

Retail banks won't disclose the fees, they'll just charge the higher rates & say they don't add "those nasty fees." That way, you get to pay them without all the muss & fuss of knowing about it ;~0

Cheers,
Dave Donhoff
Leverage Planner

    Bookmark   April 2, 2009 at 10:49PM
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qs777

Dave,

First of all, glad to hear from you. I follow your posts - or at least try to sometimes :) - to learn more.

The fees I am referring to are things such as the document preparation fees, etc. that are on top of the lender fees. I don't see how they need $300+ dollars to add specific info into a template and push "print." These fees are pure profit for them as most people don't know enough to question them. Also, my previous post did indicate that I understand either you pay fees or have a higher rate. And I'm sure you could agree that the less time someone needs to deal with my file, the better for them. I would be more inclined to pay extra fees if my file required a lot more work on their part due to poor credit score, needing explanation letters, etc. I happen to make sure from the outset that it doesn't. So I understand that I may pay a higher rate but I figure I can adjust that accordingly by paying my loan off faster as I inherently have a problem paying junk fees. I think I get that from my parents ;)

    Bookmark   April 3, 2009 at 4:56PM
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dave_donhoff

Hi qs777,

"Doc prep" fees usually go to legal departments, as in many states the act of preparing (even if it is template 'plug & play') is a 'legal contract' is considered to be 'practicing law' and the lawyer's union (aka "the state bar") staunchly protects against their jobs being usurped at any discount by the unwashed masses.

That's not at all a fee the lenders will defend, if they can get away without it. It only stands as an impediment to competitiveness (as most union-supported fluff does.)

Its nothing a consumer can avoid, short of moving to a jurisdiction that allows legal docs to be drawn by non-lawyer-supervised entities.

Next "junk fee" to consider and/or debunk?

Cheers,
Dave Donhoff
Leverage Planner

    Bookmark   April 3, 2009 at 6:49PM
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qs777

That may be true in other states (I'm in CA) but I can tell we will most likely disagree that these fees (processing, underwriting, funding, application, administration fees, etc.) are actually necessary and not pure profit as the lenders already make money on the YSP. I guess I wish that all lenders would just give one # for "lender's fee" and stop creating other ways to label them to make their rates look better. Then consumers could make better and easier apples-to-apples comparisons (instead of just APR), but I guess they would miss out on the extra $ from uneducated consumers.

    Bookmark   April 3, 2009 at 8:03PM
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dave_donhoff

Hi qs777,

That may be true in other states (I'm in CA) but I can tell we will most likely disagree that these fees (processing, underwriting, funding, application, administration fees, etc.) are actually necessary and not pure profit as the lenders already make money on the YSP.

Clearly you haven't bothered to click & read the links I posted above, else you'd not expose yourself that way.

A) The *ONLY* way a bank makes rebate revenues is by upselling you a higher interest rate. Further, if you use a broker you'll get full disclosure, and a professional with a mandatory fiduciary relationship (meaning the law holds them to place your financial interests ahead of theirs... not so with retail bankers.)

B) Processing & underwriting are seperate service positions. You don't HAVE to know they are getting paid if you prefer to be kept in the dark, but I guarantee you there are zero loans done in any state where those workers do it for free.

Now, 'app fees' and 'admin fees' may indeed be 'padding' (or 'junk') depending on who's charging them and where else that party may have their compensation.

I guess I wish that all lenders would just give one # for "lender's fee" and stop creating other ways to label them to make their rates look better.

I've been locking my clients at 4.25% on 30 FRMs all week... that requires structured buydowns (additional fees... ooooh... scawy...) and its financially in my client's best interests for all who are highly certain they'll be sitting still for at least 3 years going forward (at which point the upfront additional fees are more than covered by their accumualted monthly interest savings.)

Your proposal would eliminate this consumer advantage. Why would you want that?

Then consumers could make better and easier apples-to-apples comparisons (instead of just APR), but I guess they would miss out on the extra $ from uneducated consumers.

Finance simply isn't that simple... its not like shopping for a television set. Why don't we require education instead (passing tests, like drivers' tests for the privilege of putting everyone else on the road in company with you and your car)?

Trying to universally "dumb down" the world never works.

Ultimately you cannot escape EVERYONE collecting their compensation, and YOU won't really have any knowledge of (with bankers,) nor control over what they get paid (short of walking away from the transaction at closing.)

You can know what you are paying, and structure your transaction (not whittle it down) to your financial best interests... *OR* you can let the system blind you. Many (perhaps most) opt for the latter... so don't feel alone.

Cheers,
Dave Donhoff
Leverage Planner

    Bookmark   April 3, 2009 at 10:56PM
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qs777

Dave:

I thought I was pretty clear that either you pay upfront fees or typically get a higher rate, so I have read some but not all of your other postings (I'm typically over on the decorating forums). But I'm glad you at least gave me the app and admin fees as possibly being profit fees ;)

I have this same conversation with my friend who is a loan processor and I know she doesn't make $300+ per file. If these fees were actually for specific services in different departments then there should be no question that they should be charged. Then how am I able to get those deducted? And why can't I whittle these fees down to my best interest? I can ask and they can always say no if they want to.

My suggestion of one lender's fee was just so they can divvy up however they want to instead of calling them everything under the sun - not to let the system blind me. It would make it easier for borrowers to compare. The way they have it now is to have a lender's fee plus all of the other ones (not including third-party fees here as one can typically find out if the fee is valid) and not every lender has every fee.

I agree with you that everything must be looked at as a total package of where one wants to go financially and I don't look at fees as "scary" as long as the total package is acceptable and the best that I can get for the time frame I need. I just don't like people being taken advantage of with a high rate and high fees when they are excellent candidates and may not know any better. Unfortunately, as you know, that happens all of the time and car dealers have started following suit with added "fees."

I am not above walking away from any deal, but thankfully, I have found a broker whom I trust and he looks at the bigger picture with his clients as well.

    Bookmark   April 4, 2009 at 12:40PM
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dave_donhoff

Hi qs777,

I have this same conversation with my friend who is a loan processor and I know she doesn't make $300+ per file.

There's a significant difference between the COST of a job, and the compensation of the employee. Your friend may not be compensated a flat $300 per file processed, or nothing... but in most cases if you took her annual compensation plus the overhead she consumes as an employee, and divided it by the number of files she actually completed, that $300 fee is probably too low.

Then how am I able to get those deducted?

That's easy; "shell game!" Just shift things around (again, refer to the links I posted above in this thread.) It doesn't matter how magical you might think your negotiating skills are, the mortgage fee structure is sufficiently complex that at the closing table we can always make sure nobody is getting stiffed.

And why can't I whittle these fees down to my best interest?

See my linked post, above. Your *ONLY* real hope of getting treated right is choosing a fiduciary-acting broker (which I see is what you have indeed done.)

My suggestion of one lender's fee was just so they can divvy up however they want to instead of calling them everything under the sun - not to let the system blind me. It would make it easier for borrowers to compare.

But that is ALREADY provided on the Good Faith Estimate, at the bottom line, called "total closing costs estimated."

The *ONLY* reason everything is exploded out into a line item basis of disclosure is because the regulators have demanded it in theoretical DEFENSE of your best interests.

If mortgage bankers and brokers had our way, the paperwork for residential deals would be just like (the unregulated) commercial deals... maybe 3-4 pages max, with a very simple and short balance sheet of total costs, terms & rates.

Unfortunately, our regulators are heading the opposite direction, and you can actually look forward to GREATER complexity & confusion in the coming year or so as HUD rolls out the "new and improved, expanded" Good Faith Estimates. These are threatened to be 3-4 pages each.

I just don't like people being taken advantage of with a high rate and high fees when they are excellent candidates and may not know any better.

I agree... but the ONLY effective solution is education. Industry constriction simply hurts the GOOD players, and the sophisticated borrowers & investors.

If the problem is uneducated people endangering themselves, then we need a mandatory educational system that issues licensing for the privilege (like drivers licensing.) THEN we can nip the problem in the butt by telling lenders that their NOTES (borrowing agreements) will be invalid and uncollectible if they make a loan to an unlicensed consumer.

If a consumer gets the required education to be licensed to borrow (i.e. "drive") and still drives themselves over a cliff, then society has done their best efforts and no further bailouts are required.

Cheers,
Dave Donhoff
Leverage Planner

    Bookmark   April 4, 2009 at 9:40PM
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joyfulguy

Dave,

Are you sure that isn't, " ... nipping in the bud ....?

I expect to be nipped in the butt by a fairly large dog (the little buggers hit the ankles).

Regards,

ole joyfoul

    Bookmark   April 5, 2009 at 12:55AM
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seattlemike

Somehow, Dave's rather frank discussion from inside the industry seems more descriptive of "butts" rather than "buds".

It also seems painfully applicable to me, one of the "uneducated" (well, I'll be a bit kinder to myself and say "somewhat uneducated"), so oj, I do see myself in this scenario as one being nipped in the butt by a fairly large dog. :-)

    Bookmark   April 5, 2009 at 9:58AM
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