December 16, 2020
By Saeed Ghaffari
Lender fees and loan related pre-paid expenses are the costliest part of the closing costs in a purchase or a refinance transaction.
The lender fees are your one-time fees that you pay for the services a lender/loan broker provides and that covers a range of services. The loan related pre-paid expenses are upfront portion of recurring expenses such as interest on the mortgage, property taxes, property insurance and in some cases mortgage insurance.
In theory, you should be able to shop for any portion of the expenses paid to any service provider other than a government agency. To shop for them, you have to know what the norm is for the fees first, and also know whose pocket the fees are going in and what for.
The lender fees are broken down in 2 portions. The first one is a fixed flat fee ranging from $1500 to $2500 to cover administrative, processing, underwriting and other staffs’ fees. This fee could be higher if you are dealing with hard money lenders. There is also an appraisal fee that is a flat fee. This is paid to a 3rd party service provider and ranges between $450 to $700 for residential properties worth $1.5 m or less. The bigger the property is, the more work it will take to appraise it, the higher the appraisal cost is. For commercial properties and land parcels, the fee is much higher.
And there is the loan origination and the loan discount fees that form the 2nd portion of the lender fees and are charged as a percentage of the loan amount. They are often called points on the loan.
Sometime these fees are charged separately and sometimes they are bundled together. The discount points are meant to lower the interest rate on the loan. The more discount points you pay, the lower your interest rate will be, saving you thousands of dollars over the course of the loan. The origination points are there to cover the commission for the services of the lender and the loan officer. This fee, like the discount points is a percentage of the loan amount.
In addition to the lender fees, there are the prepaid expenses. Property taxes paid to the county government either monthly or every 6 months, property insurance paid either monthly or annually to the insurance company and the interest on the mortgage paid monthly to the lender, all are recurring expenses of home ownership.
Depending on the day of the month and the month of the year your closing takes place, you may end up paying up to 6 months of property taxes, 12 to 14 months of property insurance and up to 30 days of interest upfront to your lender so it can pass it on the appropriate party. The upfront portion of these expenses depends on the loan program and it’s the lenders’ call and the client has no say so in them.
Now the question is what portion of the loan fees can you as a borrower shop for and possibly negotiate with your lender?
Theoretically, you should be able to shop for every item of your expenses except for the taxes. But in practice, most service providers have a set fee for most of their services. Depending on the structure of the organization, most of the time the origination fee seems to be the only negotiable item. With that said, just like realtors’ average commission is between 2% to 3%, the average loan origination fee is between 1% to 2%. If the lender is charging you more than the 2%, especially on the larger transactions and bigger loan amounts, they will consider paying some or a portion of your flat fees.
The challenge consumers face is that there are so many different loan programs with different types of lending institutions, for different types of properties that makes it very difficult for borrower to compare apples to apples when they shop for a loan. On top of that, not every lender is ruled by the same set of guidelines. Depending on the structure of the lender’s organization, some are not required to disclose all their fees the way mortgage brokers are, making it more difficult for the consumers to make the right choice.
My recommendation is when you are in need for a lender services, educate yourself first, shop with 2 or 3 and choose to work someone honest and fair with experience. If you find one and start working with him, don’t let other solicitors interfere with your decision.
In an effort to bring you transparency, literacy and connection, I hope the content I shared with you comes handy next time you are in a real estate transaction and helps you make an informed and intelligent decision.
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Should I Wait For Housing To Crash Further Before I Buy A House? 3 Reasons The End of 2022 Could Be The Very Best Time To Jump In
Prices falling in expensive cities
In two-thirds of major regional housing markets — 98 out of 148 — prices continue to drop, especially in more expensive locations.
We may see expensive markets fall further, which if that happens sooner than later, would make it an excellent time to buy into an expensive market. This wouldn’t have registered as a possibility even a few months back.
It’s difficult to predict if this will happen. And if so, whether falling prices become offset by the federal interest rate hikes practically certain to arrive in the coming months.
The only way to know for sure is to wait until the latest rate hike sets in.
Meanwhile, keep in mind that — as with any investment — it’s best time to buy is usually when prices are low.
With mortgage rates dropping and fee changes in the pipeline, now may be the time to buy that home Do you like this Article ? Sign up HERE for your FREE M&M Account to receive more Real Estate related information and news and THIS article. M&M Membership...
The days of waiving contingencies such as appraisals and forgoing inspections are fading into the rearview mirror. Still, contract activity remains slightly competitive depending on your location.
At least 24% of buyers waived the inspection contingency in December 2022, according to the National Association of Realtors confidence survey, up from 16% a month prior and 19% one year ago. An additional 24% of buyers waived an appraisal contingency in December, up slightly from 16% in November and 21% a year ago.
Home inspection contingencies are particularly important because it can let you know if there’s a deal-breaking issue with the property before a purchase occurs. It can also help you negotiate repairs with the seller, which is becoming increasingly common in today’s market.
“If buyers have this short window to buy where they can get incentives to purchase, [they] would rather buy where they have an opportunity to really think about it, get an inspection, a financing contingency and not feel rushed,” Jeff Reynolds, broker at Compass and founder of UrbanCondoSpaces.com, told Yahoo Finance.