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Expert Mortgage Refinancing Advice
For Virginia Homeowners

Forbes Best Mortgage Lenders

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Top Mortgage Companies

Forbes recently updated their list of the best mortgage lenders of the year. Surprisingly, they’re nearly all banks. As you might know from watching my free Underground Mortgage Videos, banks are exempt from the Real Estate Settlement Procedures Act and do not always have your best interest at heart when refinancing your mortgage. Banks routinely add Service Release Premium to their lowest rates and are not required to disclose this markup.

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If you get a mortgage from the bank the only ones who will know how much your interest rate has been marked up is the bank. Many homeowners stick with their banks as a matter of convenience; however, most banks overcharge for loan origination and other fees.

Best Mortgage Lenders Ranked

Here’s the Forbes list of top five mortgage lenders in the United States.

  1. Bank of America
  2. Wells Fargo Bank
  3. Wachovia Bank
  4. Discover Mortgage

Take this list from Forbes with a grain of salt. The best mortgage company for you is the one that delivers your mortgage when you need it without unnecessarily marking up your mortgage interest rate and provides you with favorable terms on the loan. If you’re not already comparison shopping for lenders and brokers that agree to charge you a reasonable origination fee, you’re probably paying too much.

How much is reasonable for the mortgage origination fee? Most loan officers will tell you one percent is standard; however, I’ve reviewed community credit unions that charge as little as $400 for their loan origination fee. The less you pay closing on your new home loan the faster you’ll recoup your out-of-pocket expenses and the more you’ll benefit from today’s lowest refinance rates.

Just because a magazine like Forbes ranks the best mortgage lenders doesn’t automatically mean you’re going to get deal from one of these lenders. Lender fees vary widely from one bank to another and some of the best deals I’ve found have been from those small community credit unions and even regional banks.

How To Shop For Today’s Best Mortgage Lenders

The Good Faith Estimate is an excellent tool for shopping for the lowest rates and fees from the best mortgage lenders, if you go about it correctly. The first step is to make sure that you’re protecting your credit score and requesting quotes from identical mortgage programs.

How do you protect your credit score? Every time one of today’s best lenders runs your credit score you get a hard inquiry on your credit report. These inquiries add up and can lower your score. Some homeowners think they’re protecting their credit scores by refusing to give out their Social Security number when requesting a quote. If you do this you’re relying on the loan officer’s guessing what interest rate you’ll qualify, or simply quoting the advertised rates.

You need accurate quotes when shopping for the best mortgage lenders so it’s important to give the loan officer your Social Security number. The trick is to limit all of your quotes to a two-week period and you’ll only get dinged for one lender inquiry on your credit.

How To Use Your Good Faith Estimate To Compare Fees

The new Good Faith Estimate is an excellent tool for comparing fees from today’s best mortgage lenders. Page two outlines all of the fees you’ll want to comparison shop starting with that loan origination fee found in section A of page two.

Should you pay discount points? Item 2 of section A on page two shows any discount points charged for the interest rate being quoted. You’ll find that all of the best mortgage lenders quote rates that include discount points because the fee makes their offer seem more attractive.

The problem is that only lenders benefit from discount points. Paying this fee lengthens the amount of time it takes to break even before you benefit from lowering your payment. Make sure the quotes you’re requesting do not have points. If you’d like to see how paying discount points affects your payment amount there is a table on page three of your Good Faith Estimate.

What About Yield Spread Premium?

Every now and then I get a comment from a reader when I write about Yield Spread Premium saying that it’s illegal now and that I should do my homework. Yield Spread Premium is NOT illegal, it’s on page two of your Good Faith Estimate. The law changed to prevent originators from double-dipping their commission by charging an origination fee and taking Yield Spread Premium from the lender. Your broker can only get paid by from one or the other; Yield Spread Premium is not illegal.

What is Yield Spread? Simply put it’s a credit paid by the lender for accepting higher than market mortgage rates. The credit is found in box two of section A, page two of your Good Faith Estimate. Look for “You receive a credit of $ for this interest rate of X%. This credit reduces your settlement charges.”

This is how those “no fee” mortgage offers work. You’re taking a higher interest rate to have the lender credit your settlement fees. Is it worth doing? If you can’t afford to pay the settlement fees from today’s best lenders out-of-pocket, this might seem like your only option.

Keep in mind that higher interest rates result in higher payments and most of the best mortgage lenders allow you to roll your settlement charges into the loan balance without taking a higher interest rate. The less you pay closing on your new home loan, the more benefit you’ll get from the interest rates being offered by today’s best mortgage lenders.

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{ 8 comments… read them below or add one }

Margaret Wilcher May 12, 2011 at 2:10 pm

How can I find a mortgage company that does not utilize yield spread premiums?

Reply

Mortgage Nerd May 29, 2011 at 8:32 pm

Hi Margaret,

The only companies that receive yield spread premiums are mortgage brokers in the wholesale business. However, every lender, be it a bank or a broker, can receive compensation based giving you a higher interest rate. With banks it is called service release premium and with brokers it is called yield spread premium.

To think that just because a broker can receive yield spread premium this somehow means that you can’t get a good deal is incorrect. I would recommend shopping various banks and brokers and not worry about how much the broker receives via yield spread premium. If you are still getting the best interest rate and closing costs, does it really matter if the broker gets a little rebate (YSP) from the wholesale lender?

Reply

Robert May 30, 2011 at 9:00 am

The problem with Yield Spread Premium is what it does to your payment amount. If the broker gets a commission by marking up your mortgage rate which raises your payment $50 a month, you’re still out $600 a year…every year. Offer to pay a reasonable amount for loan origination of one percent, if the broker wants more there are a lot of brokers out there willing to work for that.

Reply

Mortgage Nerd May 30, 2011 at 9:41 am

@Robert, I agree that there are brokers out there that are willing to work for 1% of the loan amount. However, is it better for that broker to get paid via a 1% origination fee with no YSP or no origination and 1% YSP?

I think you know that the answer to that question is that it depends on the client, their personal preference, how long they are going to stay in the home, whether they have enough equity to roll in closing costs, etc.

My point is… The original question and your response make it appear to YSP is inherently evil, when in fact it is NOT. YSP can be used to pay for the brokers commission, and also to pay for some or all of the client’s closing costs. How else does somebody get a “no cost” refinance?

Reply

J Lippert April 4, 2012 at 6:33 am

Hello,
I’m shopping for a cash out re-fi. It would be very to helpful to lessen my monthly payment, but I don’t expect to, and really don’t want the cash out, but NEED it. I just want the lower rate and less years on the pay-off. I’ve watched and learned from your videos & here you say, go w/ mortgage brokers & not banks, so I was hoping to see a list of your best broker picks & don’t see it. Plus, are you saying a 1% origination fee is fair, but only if there is no YSP. Can you get a loan w/o the 1% fee? And should the origination fee be folded into the loan or paid at closing? Can you please clarify. I got one call and the guy was quite snippy when I asked about the origination fee-He did NOT offer that info until I asked.

Reply

Robert Regehr April 4, 2012 at 10:12 am

Hi J. You’d be amazed at how many brokers got out of the business after the government bailout. When it comes to shopping for a mortgage broker finding a local self-employed professional is usually the way to go. Community credit unions don’t fall in the same category as banks so they’re also a good starting point. Asking questions is never a bad thing and if someone gets snippy with you it’s usually a sign to move on the next lender. You’re doing your homework and that’s the best way to make sure you’re not overpaying.

Reply

Anna May 17, 2012 at 5:32 pm

I am trying to buy a forclosure, have been preapproved by three banks, but they will not give me a loan until the roof is fixed. I tryed getting a 203K loan, but I do not qualify, is there a bank or mortgage company out there that would give me a loan?

Reply

Sandra Schoof December 27, 2013 at 11:09 am

We currently have a VA variable mortgage at 2.5% interest and it is based on savings account interest, so it can raise up to 7%. Our loan was bought by Freedom Mortgage, and they have been very high pressure (used car salesman tactics, fear-based, etc) about wanting us to refinance to a locked 30 year loan at 4.5% interest. I’ve read horrible horrible reviews about this company, so I would not likely choose to refinance with them. The question is whether I should pay attention right now to the fear that inflation is on the rise and that our interest rate could go up that significantly? Since it is based on savings account interest rates, and I have never seen savings interest go up in the greatest inflation, should I refinance this premium loan rate and be concerned about it’s rise?

Reply

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