Loan Origination

Mortgage loan origination is the process of arranging a home loan by a direct lender or a third party mortgage broker. The loan originator prepares and submits your loan application and documentation to the lender for underwriting. Here are several tips before you refi to help you avoid common mortgage mistakes when it comes to loan origination.

Loan Origination Definition

Loan origination is simply defined as the process of creating a home mortgage loan.

Loan originators are salespeople working for a commission on your home loan. Your loan origination salesperson could be a mortgage broker or a loan officer at the bank. The mortgage broker gets paid by charging you an origination fee or with lender paid compensation in exchange for charging you a higher interest rate.

Speaking of fees, some loan originators use third party processors to prepare paperwork, a cost they pass on to you in processing fees. Some mortgage brokers are too busy selling home loans to be bothered with doing their own paperwork. Should you trust a mortgage broker that charges you third party processor fees?

If you find a loan processing fee on your Good Faith Estimate question why the fee is there in the first place and why the broker is too busy to process their own paperwork before moving on to the next broker.

Remember your mortgage broker is a salesperson; their job is to persuade you to sign for a mortgage with their company, regardless of whether or not you’re buying a new home or mortgage refinancing. The broker’s priority is to close the loan, not necessarily get you the best deal on your refi.

Loan Origination Fee

The fee you pay the broker or bank for arranging your home loan is called the loan origination fee. This fee is often called origination points, which is a percentage of your home loan. One origination point is one percent of your mortgage amount. Don’t confuse origination points with discount points. Discount points are a fee you pay to buy down your interest rate a closing, separate from the origination fee.

How much is reasonable to pay for loan origination? One percent is standard; however, many community-based credit unions charge as little as $400 for loan origination fees.

Your loan origination fee is the mortgage broker’s commission for arranging your home loan and is commonly overpaid by many homeowners. The more you pay for this fee and other closing costs the less benefit you’re getting from today’s historically low mortgage rates. Some brokers misrepresent this fee by telling borrowers that it’s used to pay the processing and application fees.

Mortgage loan origination fees are fully negotiable.

What about no fee mortgage loans? It’s true that there are no fee refinance offers out there. These are not truly “no fee” mortgage loans as the fees are just being paid by the lender in exchange for giving you higher mortgage rates. The markup of your interest rate to cover the broker’s fee and other closing costs is called Yield Spread Premium.

If your loan has a loan origination fee or Yield Spread Premium you’ll find it disclosed on your HUD-1 settlement statement or Good Faith Estimate. As far as loan documents go, think of your Good Faith Estimate as a sales brochure, where the HUD-1 is the final word when it comes to the terms and fees on your home mortgage.

Shop Around For The Lowest Rates AND Fees

Many homeowners make the mistake of focusing only on getting the lowest mortgage rates at the expense of fees. Many of the fees you pay closing on your home loan are negotiable and vary from one lender to the next. Invest a few hours of your time comparison shopping the loan origination fee, discount points and mortgage rates and you can literally save yourself thousands of dollars.

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You can learn more about getting the best deal for your next home loan without paying unnecessary fees by checking out my free Underground Mortgage Videos.

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Your Right of Rescission

wells fargo mortgage Your Right of RescissionHave you been on the fence about mortgage refinancing but fear of making an expensive mistake is holding you back? Are you familiar with your mortgage refinance right of rescission? Not many homeowners are familiar with the three-day right of rescission which lets you undo a mistake if you get buyer’s remorse. Here’s what you need to know about your right of rescission to give your mortgage rate shopping peace of mind.

Three Day Right of Rescission

There is a little-known provision in the Truth-in-Lending law that gives you three days to think it over when refinancing your home. This buyer’s remorse provision allows you to back out completely anytime during the rescission period before your mortgage is funded.

Your right of rescission starts once the closing papers are signed and lasts for three business days, excluding Federal holidays. The right of Rescission is essentially your right to cancel your mortgage refinancing transaction and get your fees refunded if you’re not satisfied for any reason.

You Have the Right to Change Your Mind

During your three-day rescission period you have the ability to back out if you find a better deal or simply change your mind about refinancing. There is no penalty and you should get your fees back.

If you’re uncomfortable with the deal you’re getting because the broker was pushy or you’ve heard the lender engages in predatory lending practices that’s more than enough reason to rescind the home loan and take your business somewhere else.

Three Day Rescission Rules

There are rules for the right of rescission like anything else. Your rescission period starts at midnight the day after your closing documents are signed. The period ends after three business days, excluding Sundays and Federal Holidays. (Good Friday is not a Federal Holiday and counts towards your Rescission period)

At midnight on the third business day your rescission rights expire and the lender will fund your home loan. At this point there is no going back; changing your mind at this point means you will have to refinance again and lose all of your closing costs, possibly even get hit with a prepayment penalty.

If you’re in a hurry to get your new home loan funded and don’t want the three-day rescission period there is no way around this rule. You cannot waive your right of rescission.

Here’s an example to illustrate the three-day rescission period:

Suppose you sign your closing documents on a Thursday. Your rescission rights begin Friday, giving you Saturday, Monday and Tuesday until midnight to change your mind. Your lender will fund your home loan on Wednesday after your right of rescission expires. Remember that Sunday does not count towards your three-day rescission period.

Exceptions to the Rule

It is worth noting that your rescission rights only apply to mortgage refinancing. If you’re purchasing a home you’re not covered for buyer’s remorse. This rule only applies to your primary residence; investment properties do not get a three-day period to change your mind.

If you choose cash out refinancing your rescission rights only apply to the cash-out part of your home loan. Your Home Equity Line of Credit (HELOC) is protected under the three-day rescission period for the amount you take out, not the entire credit line.

If you’re considering changing your mind during the three days make sure your loan originator is on the level with you about executing your right to rescind the loan AND contact your lender directly. It’s not uncommon for a broker to lie just to get the loan funded and protect their commission. It’s a good idea to discuss your right of rescission with the loan officer as part of refinance rate shopping just so they know you’re aware of your rights under the law.

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You can learn more about getting the best deal for your next home loan while avoiding lender junk fees and unnecessary discount points by checking out my free Underground Mortgage Videos.

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Here’s a quick sample to get you started with best deal on your next home loan…

What Is a Loan Originator?

Choosing the wrong loan originator to arrange your next home loan could be a costly mistake. The fees you pay including the loan origination fee make or break the deal you’re getting for your home. What is a loan originator and what fees will I pay for their part in arranging my home loan? Here’s what you need to know to avoid overpaying the loan originator and get the best deal on your next mortgage.

What Is a Loan Originator?

Simply put, a loan originator is the person or company arranging your home loan. Traditionally, mortgage loans have been sold as retail products so companies and brokers “resell” loans from wholesale lenders. In the aftermath of the housing meltdown many people are shying away from mortgage brokers and choosing so-called “direct lender” for purchase and mortgage refinancing loans.

Don’t confuse “direct lender” with wholesale lender, they’re far from the same. Wholesale mortgage lenders still exist; however, they don’t offer home loans to the public. These wholesale outlets exist for the pool of mortgage brokers “reselling” home loans to the public. Most wholesale lenders have retail divisions so don’t think that contacting one directly will get you wholesale mortgage rates.

How do Loan Originators Get Paid?

The person arranging your loan gets paid (rightly so) from one of two sources. Loan originators can accept lender paid compensation when you agree to a higher than market interest rate or they can charge you a mortgage origination fee for their services. The markup of your mortgage rates for the broker fee is called Yield Spread Premium.

Many people incorrectly think Yield Spread Premium (YSP) was outlawed; however, the only thing that changed is your broker can no longer accept both Yield Spread Premium AND an origination fee as compensation. Yield Spread Premium is alive and well.

What is Yield Spread Premium

The way YSP works is in exchange for accepting a higher than market mortgage rate the lender pays your origination fee and often closing costs. This is how those no fee refinance offers you see work. For every .25% that you accept higher interest rates the lender pays one percent of your mortgage amount towards the origination fee and closing costs. Some lenders like NFCU Mortgage Rates offer Yield Spread Premium as an option outright for paying your loan origination fee.

How Much Should You Pay?

The person or company arranging your home loan deserves to get paid. (If you go that route) I’ve seen community based credit unions offer home loans with ridiculously low origination fees as little as $300. If you’re paying a mortgage broker fee a reasonable amount is one percent of your loan amount; however, you can do better. (A lot better)

Should you accept Yield Spread Premium to pay your origination fee and closing costs? The problem with taking higher mortgage rates is that this will drive your payment up. If you’re refinancing taking higher mortgage rates reduces the benefit you’re getting and lengthens the amount of time it’s going to take you to recoup any out-of-pocket expenses. Mortgage rates are at historically low levels so paying discount points is another cost you’ll want to avoid if possible.

I’ve spent a fair amount of time reviewing lenders on this site and the best deals I’ve found as far as fees have come from the smaller community-based credit unions. Spend a little time shopping for both mortgage rates AND fees and you can save yourself thousands of dollars that your neighbors overpaid.

Click Here For More Details…

You can learn more about getting the best deal for your next home loan while avoiding lender junk fees and unnecessary discount points by checking out my free Underground Mortgage Videos.

  • Underground Mortgage Videos
Here’s a quick sample to get you started finding the best deal on your next home loan…

Wholesale Mortgage Loans

If you’re considering refinancing your home loan you want the lowest mortgage rate and closing costs for your next mortgage. Refinancing with wholesale mortgage loans can not only get you the lowest possible mortgage rates but will help you avoid unnecessary fees… if you know how to do it. Getting wholesale mortgage loans can be tricky for the uninitiated; however, you don’t have to be financial gurus to get wholesale mortgage loans… you just need to know where to go. Here are several tips to help you get a wholesale mortgage loan when refinancing your home without paying unnecessary fees or markup.

Shopping for Wholesale Mortgage Loans

The first thing you need to know about wholesale mortgage loans is that they are not available to members of the public. If you contact a wholesale lender yourself you’ll be dealing with that lender’s retail division, not the wholesale lender itself. Before we can discuss how to go about getting wholesale mortgage loans it’s important to understand what makes a home loan wholesale and how wholesale lenders operate.

Before you can find a wholesale mortgage loan you need to know a little about the different types of mortgage lenders. The three types of mortgage lenders I’ll discuss today are banks, mortgage broker banks, and wholesale mortgage lenders. Bank mortgage loans can seem like a convenient way of refinancing your home loan right? What could be easier than having your mortgage payment automatically transferred from your checking account every month? The problem with bank originated mortgage loans comes from a little known loophole in the Real Estate Settlement Procedures Act that allows your bank to hide their profit margin and markup of your home loan.

Banks fund their mortgage loans with the bank’s money and therefore set their own mortgage rates. Your bank knows what wholesale mortgage rates are but marks up their mortgage rates up to collect a profit when your home loan is sold on the secondary market. Because of the loophole in RESPA legislation the bank is not required to tell you how much they’ve marked up your mortgage loan. The bottom line you need to know about bank home loans is that you’ll never get wholesale mortgage loans from your bank.

What about mortgage broker banks? When the RESPA laws were changed to exclude banks many mortgage brokers restructured their businesses to take advantage of the same loopholes enjoyed by your bank. These mortgage brokers formed lenders that fund their home loans with their own money and were therefore exempt from RESPA laws just like your bank. How can you recognize a mortgage broker bank? Simply ask if your home loan closes in their company’s name…if the mortgage closes in the broker’s name and not the wholesale lender you know you’re dealing with a mortgage broker bank.

Wholesale Mortgage Lenders

Wholesale mortgage lenders offer their products through mortgage brokers and other retail mortgage companies. They don’t offer wholesale mortgage rates to the public, but that doesn’t mean you can’t get wholesale mortgage loans. What makes a mortgage loan wholesale? Aside from the fact that it comes directly from a wholesale lender and not a bank or broker bank wholesale mortgage loans have mortgage rates that have not been marked up to create a commission for the person arranging your loan and do not require discount points be paid at closing. This type of wholesale mortgage rate is also known as a par mortgage rate. Your goal for refinancing your home should be to get as close to par as possible for your mortgage rate. How do you take advantage of par mortgage rates since wholesale lenders do not offer them to members of the public you ask? Simply find the right mortgage broker to arrange your wholesale mortgage loan without marking up your mortgage rate or charge you unnecessary fees.

Mortgage Broker Fees

Before you can find the right mortgage broker to arrange your home loan you’ll need to understand mortgage broker fees and compensation. Your mortgage broker gets paid for their work from a number of sources. The first, most obvious fee is the loan origination fee that appears on your Good Faith Estimate. Your loan origination fee is a flat fee you pay for the mortgage broker’s part in arranging your home loan. This fee is usually a percentage of your loan amount and a reasonable amount to pay the mortgage broker for loan origination is one percent of your home loan amount. Many brokers try and charge more than one percent; however, one percent is more than ample compensation for the mortgage broker’s work on your home loan.

The second way your mortgage broker get’s paid that we’re going to discuss today is the lender paid fee known as Yield Spread Premium. Mortgage lenders reward brokers that lock and close home loans with higher than necessary mortgage rates with a fee known as Yield Spread Premium. For every .25 percent that your mortgage broker overcharges you the lender pays them an additional one percent of your loan amount as a commission, this fee is paid in addition to the origination fee you’re already paying the broker. It goes without saying if you want wholesale mortgage loans you’ll need to find a mortgage broker that doesn’t take Yield Spread Premium in addition to your loan origination fee. Get yourself a mortgage rate that doesn’t include Yield Spread Premium and you’ll have a par mortgage rate, the wholesale mortgage loan you’ve been looking for.

How do you find the right mortgage broker to arrange wholesale mortgage loans? Start by telling potential mortgage brokers that you understand Yield Spread Premium and will not take a mortgage that includes this markup. Tell them you will pay a reasonable origination fee for their services but want a par mortgage rate for your next home loan. Once you’ve found the right mortgage broker for the job you’ll be on the path to refinancing your home with a wholesale mortgage loan.

You can learn more about wholesale mortgage loans and avoiding unnecessary fees when refinancing your home by checking out my free Underground Mortgage Refinancing Videos.


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Mortgage Closing Costs Explained

If you’re in the process of refinancing your home mortgage loan you might be concerned about the closing costs your lender is quoting you… and rightly so. Mortgage lender junk fees and unnecessary markup will be responsible for American homeowners overpaying nearly sixteen billion dollars this year alone according to the Secretary of Housing and Urban Development. So how can you minimize your closing costs while avoiding unnecessary fees and make sure you’re not part of this statistic? Read on… this article has my best mortgage refinancing tips to help you avoid paying too much for your next home loan.

Mortgage Closing Costs Explained

Closing costs on your home mortgage loan are the fees you’ll pay up-front like home appraisal fees, loan origination fees, title fees, discount points, recording, underwriting, and loan processing fees. These fees are first presented to you on your Good Faith Estimate; however, mortgage lenders and brokers are notorious for low-balling closing costs on the Good Faith Estimate. The only reliable document for scrutinizing your closing costs is the Hud-1 Settlement Statement. This is unfortunate that bait and switch has become common practice in mortgage lending in the United States and ultimately why most of your neighbors overpay for their home loans.

The first closing costs I’m going to explain today technically aren’t a closing cost; however, you still have to pay it at closing and are prepaid interest, taxes and insurance. (You’ll have to pay interest from the day you close until the end of the month at closing making it advantageous to close on the last day of the month.) Your actual closing costs are called “hard costs” and are the fees paid to the mortgage lender or any third party company involved with your closing. These hard fees associated with your mortgage are the origination fee, underwriting fee, and loan processing fee. Anything you pay for title charges are escrow costs and fees paid for title insurance. Any reserves you might be required to pay go to the escrow account to pay your taxes and homeowners insurance premiums. Escrow accounts are how lenders protect themselves by ensuring your property taxes and homeowner insurance is paid on time; a service you’ll have to pay for if escrow is required on your loan.

Mortgage Refinancing Closing Costs

It can be common practice to roll your closing costs into the loan balance when refinancing your home; however, if you do this you’ll be paying these costs over and over again for the duration of your loan…especially if you opt for a no cost mortgage loan. It’s always better to pay closing costs and origination fees up front rather than accepting a higher mortgage rate and loan amount to cover the difference. If you have an escrow account on your original mortgage you cannot transfer it to your new mortgage; you’ll have to create a new escrow account and pay any fees associated with this new account.

Average Mortgage Closing Costs

Closing costs vary from one state to the next and from one lender to the next. Also, if there is an attorney involved your closing costs will be higher. Not including the attorney and mortgage broker fees you could estimate your closing costs anywhere from 1.5% to 2.0% of your loan amount. The origination fee needs to be considered separately because this is charged by your mortgage broker and is frequently overcharged. If your mortgage broker is charging you an origination fee they should not be marking up your mortgage rate for a commission from the lender, which is another topic I’ll get to shortly.

No Closing Costs Mortgage Loans Are a Lie

What about these lenders that advertise no closing costs or a flat $395 fee for their mortgage loans? There’s no such thing as a “No Closing Cost” mortgage loan. Your closing costs, especially the ones paid to third party companies have to be paid no matter what the mortgage lender’s pitching. Carefully read the fine print and you’ll find out that these loan originators are using a fee known as Yield Spread Premium to pay your closing costs.

Yield Spread Premium is a fee paid by the wholesale lender when you accept a mortgage with a higher than necessary mortgage rate. It is a cash percentage of your loan amount, one percent for every .25% you agree to overpay, and results in a higher than necessary mortgage payment. (Several hundred dollars a month or more…) If you want the lowest possible mortgage rate and payment amount you must avoid any form of Yield Spread Premium. It’s not just “No Cost” mortgages that use Yield Spread Premium…at least with these loans the money is going towards your losing costs. There are a whole lot of mortgage brokers out there that pocket this kickback from the lender as part of their commission. Avoiding sleazy mortgage brokers is the one of the topics from my free Underground Mortgage Videos.

What About Mortgage Junk Fees

So how do you know which fees on your Good Faith Estimate and Hud-1 Statement are junk? Most of the third party charges on your Good Faith Estimate that don’t come from the broker are on the level and can’t be avoided. Attorneys, surveyors, and appraisers all need to be paid as part of getting a home loan. Underwriting fees are fairly standard and if you don’t like a particular lender’s underwriting fees you can always go to another lender. As for the junk fees you’re likely to encounter when refinancing your home, they typically come from the loan originator. Your mortgage company or broker is responsible for nearly all of the junk fees out there.

What are mortgage junk fees? We already talked about Yield Spread Premium. Anything resembling a rate lock fee is pure garbage. There isn’t a lender out there that charges a fee for locking in your mortgage rate… if your broker claims there is a fee for rate lock you can be certain you’re dealing with a dishonest mortgage broke. Mortgage broker courier fees are also pure junk. Origination fees and processing fees aren’t junk but are frequently abused. Don’t agree to pay more than one percent for loan origination and any loan processing fee greater than $400 is also garbage.

You can learn more about refinancing your home mortgage and closing costs by checking out my free Underground Mortgage Videos. These videos walk you through every aspect of refinancing your home including how to recognize and avoid junk fees like Yield Spread Premium in easy-to-understand terms without jargon.

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