Its Easy To Pay Too Much In Mortgage Fees Watch For These Five Fees
For most people, buying a home is daunting. After all, real estate transactions are usually a once- or twice-in-a-lifetime experience, so theres little hands-on opportunity to become intimately familiar with the process. Youll have mountains of paperwork to sign, industry jargon to decipher, and a host of fast-talking salespeoplefrom real estate agents to mortgage brokersto contend with.
Somewhere between the elation of purchasing property and the boredom from signing forms, its easy to lose track of what youre paying for and how much youre spending. Aside from the mortgage, most other expenses get lumped into a category called closing costs. Paying attention to these costs before you get to the closing can help you understand where your money is going and maybe even save you a few hundred dollars.
How Much Will I Pay
This depends on the amount of your loan and other factors.
For all loans, well base your VA funding fee on:
- The type of loan you get, and
- The total amount of your loan. Well calculate your funding fee as a percentage of your total loan amount.
Depending on your loan type, we may also base your fee on:
- Whether its your first time, or a subsequent time,;using a VA-backed or VA direct home loan, and
- Your down payment amount
Note: Your lender will also charge interest on the loan in addition to closing fees. Please be sure to talk to your lender about any loan costs that may be added to your loan amount.
Can You Lower Your Closing Costs
Often, the fees you’ll be charged in conjunction with closing on your mortgage are set in stone, but in some cases, your lender may be willing to negotiate. Your lender is supposed to give you a detailed breakdown of your estimated closing costs well ahead of your closing date, so at that point, you’ll have an opportunity to familiarize yourself with those fees and see whether your lender will come down on any.
For example, you may manage to get your lender to come down on your loan application fee or waive the points assigned to your mortgage while honoring the rate you’ve locked in. How do you do that? Speak up and ask.
That said, if you can’t manage to lower your closing costs, you still have a couple of options to explore. First, you can see whether your seller is willing to pay some of those costs, thereby easing the burden on you. If you’re paying your seller’s asking price for your home, he or she may be willing to chip in.
Another option is to roll your closing costs into your mortgage in the form of a higher interest rate on your loan. Doing so means you won’t have to come up with so much money upfront, but it will make your mortgage more expensive to pay off on a month-by-month basis.
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Are They Just Junk Fees
- Loan origination fees arent necessarily junk fees
- They are commissions paid out for helping you obtain a loan
- And just because you arent charged the fee directly doesnt mean its the better deal
- Look at the big picture to determine the best offer
The loan origination fee is not necessarily a junk fee seeing that many loan originators dont get paid salaries, as noted. So they need to get paid somehow.
But some lenders may not charge them and refer to them as unnecessary or excess charges as a result.
However, if they dont charge you directly, it just means theyre making money a different way, perhaps via a higher interest rate and/or by charging other lender fees.
Certain mortgage bankers can earn a service release premium after the loan closes by selling it to an investor on the secondary market.
This isnt a fee imposed on the borrower directly, though a higher-rate mortgage may fetch a higher SRP.
In any case, someone will be making money for originating your loan, as they should for providing a service.
So dont get fired up about it, just try to negotiate costs lower as best you can. Or go elsewhere for your loan if youre not impressed.
The reason its sometimes given junk fee status is that its often a fixed percentage, which means its not necessarily tailored to your specific loan or the amount of time/risk involved.
If these fees were based on a dollar amount instead, skeptics may not consider them junk. Or may think theyre less junky.
Check Page 2 Of The Loan Estimate Or Closing Disclosure To See What Youre Being Charged
On the newer Loan Estimate or Closing Disclosure forms, youll see this information on page 2 of either form under the section titled Loan Costs.
There youll find the Origination Charges, which may include a flat fee and/or a percentage of the loan amount represented in points.
In this example, the borrower was charged an eighth of the loan amount in the way of discount points and an administration fee of $1,495.
The fraction of a point may have lowered their interest rate slightly, while the so-called admin fee covered typical lender services like underwriting and processing.
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Which Mortgage Refinance Fees Are Negotiable
I just finished refinancing my primary residence mortgage. It took four months, but Im extremely thankful I got it done.
My new loan is a 7/1 ARM at 2.625%. The loan amount is $700,711 and the new monthly payment is $2,814.41. Not only did this mortgage refinance cost me nothing, I was paid a $220 credit. Thats right. The bank paid me to refinance with them!
In this article, I want to highlight all the mortgage finance fees and show which finance fees could be negotiated. Refinancing your mortgage now is a great idea because mortgage rates are close to 10-year lows.
How To Negotiate Closing Costs
Looking to reduce your closing costs? Learn about your options for negotiating, reducing, or eliminating your closing costs entirely!
Closing costs refers to all of the costs it takes to get a mortgage aside from the price of the home itself. Closing costs vary but can include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees, and credit report charges. Aside from those, youve also got prepaid costs that recur over time, such as property taxes and homeowners insurance.
It may seem like a lot, but in general, closing costs can be broken down into four main categories: commissions, loan fees, title charges, and government recording/transfer fees.
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Buying A House Typically Comes With A Lot Of Paperwork To Navigate Including Home Fees And Other Costs That Youll Want To Track
While youre shopping for a loan, youll want to educate yourself about the various fees you may face when buying a house. You may be able to find some of these closing costs, along with your estimated interest rate and monthly payment, in your;loan estimate, which the lender must provide within three business days of receiving your application.
With a bit of planning, you might even be able to get rid of some of these fees, or find more cost-effective alternatives. Read on to learn more about some of the fees you can face during the buying process.
Think About Seller Concessions
If youre buying the property and moving into a new home, you can sometimes negotiate with the seller to get them to pay for certain closing costs which may include your origination fee. Seller concessions have to be included as part of your purchase agreement to utilize this strategy.
There are a couple of drawbacks to this strategy.
First, sellers may be more hesitant to take your offer if it requires them to pay a bunch of fees.
Additionally, they may actually be limited in the amount they can give you, as all major loan programs have upper limits on how much sellers can pay for in closing costs, expressed as a percentage of the overall loan amount.
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Smaller Home Loans May See Higher Fees Percentage Wise
- Because the loan origination fee is percentage-based
- It will be higher on smaller loan amounts, all else being equal
- This ensures the originator is paid adequately
- Since most home loans require a similar amount of work regardless of size
Also consider that for smaller loan amounts, a larger loan origination fee will need to be charged, seeing that its expressed as a percentage and wont go nearly as far as a similar percentage on a large loan.
For example, a $100,000 loan amount with a 1% fee is only $1,000, whereas a $400,000 loan amount with the same 1% fee would be $4,000. And both loans could require the same amount of work.
In fact, sometimes the smaller mortgages can be even more a burden to close. So consider the dollar amount as well.
With regard to Qualified Mortgages, a higher 5% max fee is allowed for loan amounts between $20,000 and $60,000.
Are Loan Origination Fees Negotiable
Origination fees and many of the lender-side fees are negotiable, so dont be afraid to ask your lender to reduce yours. Origination fees can be lowered by:
- A simple reduction of the fees by the lender
- The lender giving a credit to offset a portion, or all, of the origination fees
- Taking a higher interest rate to reduce your up-front costs
If you are still left with up-front costs, consider asking the seller to contribute to your closing costs. The odds of receiving seller contributions are market-dependent, so be sure to consult with your real estate agent about this.
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Real Estate Agent Commissions 6% Of The Purchase Price
Most residential real estate transactions involve both the buyers and sellers real estate agents. For the most part, homebuyers dont have to come up with the cash to pay your real estate agent out of pocket. The seller typically pays both the sellers agent and the buyers agent out of the sale proceeds. A common commission is 6% of the purchase price, split between both the seller’s and buyer’s agent. The going rate will vary based on your local market, so ask your real estate agent for exact details.
Before You Make An Offer
Before you make an offer on a house, shop for rates from multiple lenders. By shopping early, you can get information on rates and closing costs from multiple lenders. Having this information will give you a leg up when youre ready to negotiate on each aspect of the loan.
While youre shopping, let the lender know that youre looking for the best rates, and that youre also looking at closing costs. Ask the loan officer whether the lender has rate-matching guarantees or other flexible pricing options. At this point, you wont be specifically negotiating any loan terms, youll just be getting a feel for which lenders are most likely to budget on their offers so you know who to turn once you’re ready to put down an offer on a house.
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How Do I Ask My Bank To Lower My Mortgage Rate
Just Call and Request a Lower Rate While not conventional or at all common, some folks have obtained lower interest rates simply by calling up their mortgage lender and requesting one. You need to indicate that you have no interest in refinancing with them because otherwise theyll just take you down that route.
Mortgage Rates Where You Live
Mortgage or refinance rates depend on different factors, including where you live. To better understand what rates you may qualify for, including what the average mortgage or refinance rate is in your area, take a look at Credit Karmas mortgage rate marketplace and our latest state-specific guides.
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Know What Mortgage Terms You Want And Need
Familiarize yourself with the loan options available to you. When its time to negotiate mortgage rates, youll want to make sure that the loan terms fit within your budget and long-term plans. For example, variable interest rates are typically lower than fixed interest rates initially, but could be less affordable later.
Its crucial to know upfront in your mortgage negotiation strategy what type of loan and terms youre looking for, and how they may affect the cost of the loan. A mortgage calculator can help you estimate your monthly payment and loan costs.
Should I Get A Conventional Or Government
The answer depends upon your situation. If you have good credit, have the ability to make the required down payment, and have a steady employment history, a conventional mortgage might be the right option for you. Conventional loans often carry favorable interest rates and terms.
An FHA loan might be a good option for those who are not perfect applicants. This might include a lower credit score, an inconsistent work history, or other blemishes that could deter a lender on a conventional loan. An FHA loan carries a government guarantee, which gives the lender a bit more security.;
If you are a veteran, a VA loan might be a good option for you. Again, the government guarantee allows the lender to risk you even if your financial situation doesnt match up with what might be required for a conventional loan.
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Read Your Loan Estimate Carefully
Once you choose a lender, be sure to read your Loan Estimate carefully. It outlines all the fees youll be expected to pay at closing, including the origination fee. Though this fee covers many services associated with your loan, theyre often negotiable. Never be afraid to ask your lender for a reduction or credit to offset your costs especially if youre a first-time home buyer.
Loan origination fees are common costs that cover your lenders work to process your loan. Origination fees are typically just one percent of your loan balance and theyre often negotiable. Talk with your mortgage lender about their origination fee and plan to pay this extra closing cost before you move in.
Dan Green
Dan Green is a former mortgage loan officer and an industry expert. He’s appeared on NPR and CNBC, and in The Wall Street Journal, Bloomberg, and dozens of local newspapers. Dan has helped millions of first-time home buyers get educated on mortgages, real estate, and personal finance. Have mortgage questions? Ask Dan in the chat.
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Understand The Different Costs
Closing fees come in different sizes and from various sources. There are the fees that the lender charges, and then there are also state and federal taxes that homebuyers have to pay. Lender fees are going to vary from one bank or mortgage broker to the next, and this is where you can find the most potential savings. On the other hand, theres little to no room for negotiation with things such as city, county, and state transfer taxes, prepaid property taxes, and recording fees.
The most common costs that homeowners will face to close on the home include a land survey, a home appraisal, credit checks, a loan origination fee, an application fee, and home inspection fees. A borrower may also purchase points to lower the interest rate over the life of the mortgage loan. The amount that someone is going to pay in closing costs depends on the financial company and the mortgage-related fees that it charges, the state in which the home is located, and how much the loan is for.
In 2019, the highest average closing costs, excluding taxes, were in the District of Columbia , New York , Hawaii , California , and Washington , while the lowest were in Indiana , Nebraska , Iowa , South Dakota , and Arkansas .;
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What Is A Mortgage Origination Fee
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A mortgage origination fee is any fee that adds to the profit a lender can make on a loan.
Mortgage lenders are going to charge fees one way or another; that’s why it’s important to shop for a loan from more than one mortgage provider. But it’s a bit of a shell game: Are the fees included in the interest rate, as an extra charge over on the fee sheet or both?
And its not as simple as being just on the lookout for something called an origination fee. There are dozens of names for these bolted-on costs that can show up in your Loan Estimate as part of the loans .
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A loan’s interest rate already comes with some built-in markup for the lender. To help make their interest rates appear more competitive, some mortgage companies will charge additional lender fees instead of profiting only from the rate.
“It’s one way of framing the product to make it appear more attractive than it is,” says Casey Fleming, a mortgage advisor who works in Silicon Valley.
When comparison shopping lenders, the key is identifying the fees that are valid, perhaps even negotiable, and the fees that are tacked onto a loan to pump up a lenders profit.
