FHA origination fee and what it means......

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Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

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Don't let your lender confuse you with definitions of certain fees. It's amazing how some loan officers will define such fees, especially when explaining what an origination fee is. In regards to conventional loans, most companies just put their points under discount points. Sometimes you will see a lender place nothing under origination or discount points, but under broker fee. And then you have the FHA origination fee.

 
Definition: Origination Fee 

A fee related to establishing your mortgage. The exact use can be unclear, but the fee ultimately compensates your lender or broker for putting your loan in place. This is from about.com.

In some handbooks that are supposed to be supplied by all lenders to their clients when purchasing or refinancing, the origination fee is defined as a fee covering the lender's administrative costs in processing the loan. 

 


History of the origination fee or the origination point :

Prior to 1983, the origination fees primary explanation from lenders to consumers was for compensation of their services. In the 90's, this basically changed as a fee equal to that of a discount point.  A discount point is a certain percentage that is usually paid to lower the rate. 1 point is equal to 1% of the total loan amount. On a $200,000 mortgage, 1 point would be $2,000 in what you would pay in regards to points. Whether or not to pay a point or two is another topic of discussion. For more information on this topic, please read The Myths about ZERO point mortgages instead of paying points upfront.

 
Another myth is that the lowest rate is always the best deal. This is partially true, but it depends on how much you pay for this rate. Again, read the post, myths about zero point mortgages.

 

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Conclusion : Overall, the best chance to waste your money is to misunderstand these terms. The method of which origination fees are still quoted separately from discount points is because of historical habit. And in some cases, loan officers hoping that borrowers will lose track of the real price of that rate.

When shopping for rates and fees, make sure that you ask for total points being charged. Most of all, smash that question in your head and make sure that you get a good faith estimate and not just a quote over the phone. This is good for several reasons. It will make the lender put it in writing, even though they can change this at any time. And it can sometimes keep them more honest in quoting you rates because they will be putting it in writing. Lastly, it gives you a chance to review all fees that are associated with the loan. Just make sure that you don't shop yourself right out of the market

 

 

 

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For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

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For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Ambassador
260,846
Fran Gatti Licensed in CA & OR
RE/MAX Integrity - Medford, OR
Managing Principal Broker - RE/MAX Integrity

Jeff,

Good stuff and thanks for arming us with more info on FHA and lending in general.

Aug 20, 2007 04:02 PM #1
Rainmaker
251,546
Katrina Madewell
Charles Rutenberg Rlty- More than 5,000 agents(813) 777-1196 - Tampa, FL
Tampa FL Homes for sale | Tampa Bay - (813) 777-1196

Your FHA Blog posts are so great!   Very nice to have had the opportunity to meet you over the phone outside of your blogs!  I can FEEL that not only are you the FHA Expert, but also are a great human being!

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Aug 20, 2007 04:46 PM #2
Rainmaker
162,777
Lorinda Ward
Keffer Realty - Norfolk, VA
Serving, Hampton Roads Virginia. Norfolk, Chesapeake, Va Beach
Thank You Jeff!  I can always go to your blogs for great advice.
Aug 20, 2007 05:51 PM #3
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Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

I am always suspicious when buyers don't have a good faith estimate. I ask them to send it over and they are like "what?"

Some of the big corp transferring employees always pay down a point or 2 for their employees.

 

Aug 20, 2007 10:51 PM #4
Rainmaker
3,600,595
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel
Thanks for a great post.I will use it to explain points to buyers.
Aug 20, 2007 11:21 PM #5
Rainer
130,560
David A. Podgursky PA
THE PODGURSKY GROUP @ Re/Max Direct - Boynton Beach, FL
THE PODGURSKY GROUP - Make the Right Move!

great time to be talking FHA...

good information

 

Aug 21, 2007 04:51 AM #6
Rainer
70,942
Thomas Weiss
Thomas R. Weiss - West Palm Beach, FL

Jeff,

Thank you for this, you know me, i'm like a sponge, very useful info on FHA....

Tom Weiss

Aug 21, 2007 07:57 AM #7
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Fran.....   my pleasure and thanks for the support and for following these FHA posts.

Katrina...... thank you very much for those kind compliments. You sound like someone very easy to work with from our chat and I can see why your clients keep coming back to you.

Lorinda...... my pleasure and thanks for the support and for stopping by.

Missy...... how about when I have a client shopping and tells me what they got from another lender. But then I ask them if I could see the GFE and they never got one. Or, better yet, they applied for a mortgage and was never given a GFE. The best one, pre-qualed, but never given a rate or payment over the phone. Just an okay to buy.  SAD

Gita.... I hope it helps them, because so many have been confused when loan officer's don't explain it at all. Or just bits and pieces.

David P. ......  I agree and thanks for the compliment.

Tom W. .......  my pleasure and thanks for stopping by. And yes, I know you are sponge for this information.  

Aug 21, 2007 08:23 AM #8
Rainer
22,160
Christopher Onwuasoanya
Atlantic Waste & Power System - Sparta, NJ
Can you charge origination in NJ? I had believed the answer to be no. The last FHA loan I did was 3 years ago and I intend to start again next month.
Aug 22, 2007 02:15 PM #9
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans
Christopher......   you can still charge origination on FHA loans in any state, even FHA.  When it comes to conventional, you can still charge it as a origination, but most lenders prefer that you charge it as a discount point, to keep things uniformed. But if you understand both origination or discount, they are the same end result, even though they can have 2 different meanings.  I hope this helps some.
Aug 22, 2007 02:27 PM #10
Rainmaker
592,421
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Jeff,

Great start,

It's common practice on the left coast that origination is shown either (Line 801 on the Good Faith Estimate and subsequent HUD-1) as "1" or "0" with anything less that "1" or greater than the "1" shown as discount (Line 802). It's not right, but it doesn't change the totals or the "APR."

A more insidious practice is when quoting "points" oftenorigantion is assumed so that if you call two lenders and one honestly says "three including origination" and the next says: "two and a half" the consumer doesn't know which is lower. This is why with out a "Good Faith Estimate and Truth In Lending" forms no one not even the two of us can compare loans.

"Points is Points" you've got to consider all of them!

Consumers also have to watch out for "Processing fees" now normalcy called "Administration fees" These fees are a part of the origination that is quoted in dollars instead of points.

Banks and mortgage bankers often have far fewer indivual line items that mortgage brokers which can be very confusing for the consumer. The broker has to comply with much stricter disclosures than the direct lender, but it's rare that the broker's total fees aren't less.

Consumers should look at the total closing cost (Line items are truly unimportant, it's the total that matters!) of two loans at the same rate and term to determine which is better. For loans at different rates they should look at the total of cost and payments over say five years. "APR" doesn't work for comparing two loans of different rates unless you're going to have the loan for the full term, normally 30 years. Loans rarely go more than 5 years these days we're more restless than our Grandparents.

Bill

Aug 23, 2007 04:50 PM #11
Rainer
32,032
Ken Stampe
iBrandPlan.com - Grow your e-Profile & Brand - Dallas, TX
iBrandPlan

Anyone quoting and charging discount points without being able to show an actual reduction in interest rate is out of compliance. Discount points are prepaid interest and NOT intended in any way as a profit source for the lender. In simple terms, an 8.00% loan can be reduced to 7.50% by paying an up-front lump-sum in the form of discount points. Interchanging discount and origination is either ignorance or deception.

To be very clear, this is not an implication that Jeff Belonger does this, but an added clarification.

Aug 23, 2007 05:08 PM #12
Anonymous
Urs

I was told that your office can aswer and assist with questions regarding FHA loans. Please reply: Can I get a FHA Loan with this background? I have a credit scores of 679, 689, 701 I have been working as a teacher on the same job for over 10 years. My teacher salary is about 43,000 a year I have only one debt which is a student loan which I pay $135 dollars  a month. It has never been late in the last 7 years. I have credit cards with very low balances. Most paid off monthly. The minimum payments are $15.00 a month. This makes my total debt along with student loan $207 monthly. No car loans or other type debt. I have a savings of $8,000 dollars in a bank account. My first problem is that I have small collection accounts from 2005. All are less than $1,000 and the total of about 4 of them  together is less than $2,000. My second major problem is that I have a separate larger collection account. It is 3,300 for an auto or auto repair. The car was in my name and my ex husband has since stop paying on it because he could not repair it. I had about 3,300 left to pay on it. That was in August of 2005. It is reported as date of last activity Jan. 2006. I do not have the vehicle and have been divorced since 2002. This collection is at least 3 or 4 years old. I have made all payments on time including rent for the past 3years. Can i get approved for an fha loan? Also why does FHA loans approve people who had bankruptcy after 2 years and someone who had a foreclosure after 3 years but refuse and or require an explanation for collection accounts for upt to 7 years?  Was it better for me to file bankruptcy or allow a foreclosure in 2005 or 2006 than it was to try to reestablish credit paying who I could? I really want to buy a home. Please respond soon.

Aug 31, 2009 02:12 AM #13
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Urs....  please call me on my cell phone at 609-440-5133.  It would be easier to explain all of this.  And also, what state are you trying to purchase in?  thanks

Jeff Belonger

Aug 31, 2009 02:18 AM #14
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