Real Estate NewsLine-by-Line Loan Shopping: Origination Fees Don"t Tell the Whole Story
Low interest rates and improved first-time home buyer market made it attractive for me to consider selling my home and acquiring my first move-up home. Knowing that my city is in a "tight" or sellers" market, I knew I would need to become prequalified for a loan to position myself as a serious buyer.
Getting prequalified is an important first step. Most Realtors routinely ask buyers to become prequalified before they will even take them to see homes. Also, prequalification helps limit your search to homes that are the right price for you, saving both you and your Realtor time and exasperation. Third, it lets the seller know that you can move more quickly toward closing, since many of the initial steps in the loan approval process already have been accomplished.
I was given the name of a mortgage broker named Connie with One Source Mortgage, a loan brokerage service, who was able to move quickly to get me prequalified. This was important, as I found a home almost immediately that I wanted to buy. Connie personally came to my home to take my application. I gave her a check for $70 to initiate a credit report. Within 24 hours, I was able to put a contract on a home I had found armed with my prequalification letter. The seller countered, and I countered back with a higher figure than I had planned. Again, Connie moved quickly to position me to back up my new offer with a verbal qualification. As I signed the contract on my home, I felt wonderful.
Because I found a new home to buy before selling my old one, I needed an equity loan to make the down payment. I called Connie back and learned that her company didn"t do equity loans. I was disappointed. I was extremely happy with her service until that point.
I contacted Home Savings of America, the lender who holds my current mortgage, to look for an equity loan. Tim, the loan officer, listened to my plans and offered to look over my loan package and help me qualify both for the equity loan and the new mortgage. He came to my home and offered to give me a "good faith" estimate, just as Connie had done. When we compared the two loans, it quickly became apparent that I would have to bring an additional $2,000 or more to the closing if I went with Connie"s company rather than Tim"s.
I was shocked that there would be that much difference. One of the reasons is that One Source Mortgage is a loan broker who charges an origination fee (the broker"s commission). I was expecting to pay a fee for the excellent service that Connie offered me, but I was surprised to learn the extent to which the other fees on the loan were padded. These are fees designed to yield additional profit to One Source before it sells the loan to the final mortgage holder company. Remember the $70 credit report fee? Home Savings charged $15 for a credit report.
Home Savings of America is a direct lender. Not only were there no origination fees, but a line-by-line comparison of the two loans showed that Home Savings charged considerably less for numerous fees. Fees not mentioned below were the same on both estimates. See below:
One Source MortgageHome Savings of America
Origination Fee$1,280$0
Appraisal Fee$325$275
Credit Report$70$15
Tax Service Fee $115$78
Underwriting Fee$350$210
Closing Fee $150$0
Document Prep$200 $60
Processing Fee $300$145
Flood Certification$26.50 $18
$2816.50$801 = Net difference of $2015.50
I found that direct lenders also vary their fees. I ultimately got an equity loan from another bank who charged $250 for an appraisal on my old home, a difference of $25.
Emboldened, I contacted lenders that I knew on the Internet. I knew some direct lenders like Countrywide offered substantial savings for homes generated online, if you can qualify. After going through the company"s Gold Program, I was disappointed to find that I didn"t meet the strict criteria. Under their guidelines, Tom Cruise or Oprah Winfrey wouldn"t qualify. Why? You have to be employed by an employer for at least three years. Self-employment, no matter how successful, doesn"t get it. And I have been an employee of Agent News for less than a year. Other lenders charged 3/8ths of a point to originate the loan, a fee I was determined not to pay at all, since it had already been proven to me that I could obtain the same level of service without it.
Although, there may have been cheaper direct lenders, I chose to move forward with Home Savings. What I learned from this experience that I can safely pass on to readers is to shop before you commit to a lender.
Don"t rely on your Realtor to recommend a mortgage company unless she/he can show you a line-by-line comparison of lender fees. Realtors will have a relationship with certain lenders, but that is no guarantee that you will pay a low rate. Only you can insure that. When you interview a lender, get a good faith estimate, which will provide line by line what the charges will be at closing, and what the rate will be for the term of the loan. Then compare -- line by line. If you don"t understand what a charge is for, ask. And take the good faith estimate with you when you shop other lenders. Show them you are a serious shopper.
Who better to lend money to than someone who is wise with their money?