Mortgage Junk Fees - FHA loans are more expensive!!!!!

 

 

 

BEWARE – A very boring topic below, but important to understand.

 

 

What first comes to mind when you hear the word junk? 

  --  Crap?

  --  Old?

  --  Trash?

What about the term, junk fees? Closing cost junk fees? Answer dot com gives you a definition of this and an example. - Junk Fees - Many people, even realtors and loan officers, assume that fees other than points charged by the lender are junk fees.  Back in the day, this might have been partially true. But there is a cost of doing business and in today's market, it's not cheap. It all comes down to how it's explained and how it's shown on your good faith estimate.

 

 

So, how does a mortgage work?  A mortgage company, the processiing, and it's fees?  It really hasn't changed since I got into the mortgage business in 1992. Well, the profit margin and fee structure of a mortgage company hasn't really changed. The cost of doing business has a little. 

Your typical fees are generally :

• $500 commitment fee

• $82 transfer tax fee

• Credit report fee

 

Other fees that you will see :

• Processing fee

• Warehouse fee

• Doc Prep Fee

• Attorney Fee

• Administration fee

 

 

Now, here is what disgusts me when so many realtors or borrowers scream junk closing fees. Until you understand on how a normal mortgage company operates, you won't truly know what is a junk fee or not.  And another thing to understand, it also comes down to the rate and points that one is charging. All mortgage companies and banks have fees associated with doing a mortgage.  Even your bank down the street or Bank of America or Wells Fargo charge closing costs.  It just comes down to where they place these fees. Here are some real examples....

 

It generally costs about $1,000 for the processing of a mortgage. This is to include fees associated with the lenders warehouse line, underwriting, and closing of the loan. You might say that the lender can get this in the points and or rate. Yes, this can take place and this is how I generally do it. Why?  Because you can write of a percentage of your points and interest on the loan. The fees, aka junk fees, can't be deducted on your tax returns. Please consult a CPA or an accountant when talking about this. Overall,  it comes down to understanding the process and costs of a mortgage; not what you assume.

 

 

My whole point to this is that the fees have to be collected one way or another. Yes, some loan officers or lenders beef up their fees, adding to them, which gives them the name  'junk fees'. I have seen some weird names for some of these fees. But every lender has a profit margin. I have worked for large lenders and small ones, and it usually is close enough. When you borrower money, it costs money. It basically comes down to how large the profit one is willing to make. But keep in mind, it's more than just about the rate and fees. What about service?  What about communication? What about timely responses?  What about your loan officer educating you about the process? I'll be honest, I would be the cheapest one out there every time, that's if I didn't have to return a phone call or an e-mail or explain anything.  And this happens more often once you say yes to a specific lender, in starting the application process. I know this because I hear it from borrowers all of the time. Good news or bad news, that loan officer should be somewhat easy to reach until you are finally closed on your loan.

 

 

 

Important Key Point to remember -

 

Each borrower is different.  Each loan is different. Remember that I said most lenders have a specific profit margin in mind?  Let's say it's $4,000 per loan. If I am borrowing $400,000, it would cost me 1 point in fees, points, or in the rate. Meaning that I could charge you no points and no fees, yet charge you a higher rate to still make my profit margin. If I am borrowing $100,000, it will now cost me a total of 4 points, no matter how this is spread out within the fees or the rate.

My whole point is that you can't compare your friends cost of a loan or sometimes the rate. Not if the lender is charging you accordingly. I just had a borrower e-mail me their HUD settlement sheet and yes, they charged $2,083 in fees. But if I look at my profit margin, I was about $2,100 cheaper than this company and a 1/4 percent lower in rate. I agree that you need to shop for your mortgage, but you should not over-shop or shop for the lowest. Just my opinion on this.

Please read : I want the same deal that my friend received on their mortgage.

 

 

 

Pet Peeve -

 

FHA loans are more expensive!! - No, they are actually cheaper in costs. I just did a cost scenario for a borrower, as I always do, and it was costing him $9,000 less on a FHA loan and the payment was $3.00 more a month. Yes, it was because I had him put 3.5% down instead of 5% down. But it was also because the points for that same rate were actually a 1/2 point less on the FHA loan, which in this case was $1,930 cheaper. Why?  Because most investors and major lenders get a larger SRP (service release premium) back from those that buy these on Wall Street. The fact that many say FHA mortgages are more expensive in costs, just don't know what they are talking about in most cases.

 

 

 

                    

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

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

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

Copyright © 2009 by Jeff Belonger of Infinity Home Mortgage Company, Inc