If you are in the process of taking out a new mortgage to purchase your home or refinance your existing mortgage, the fees you pay can make the difference between getting a great mortgage loan and paying too much. The fees on your Good Faith Estimate are often cryptic and many brokers leave the most important loan processing fees out completely. Here are several tips to help you make sense of mortgage fees and avoid paying too much for your next mortgage loan.
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that can save you thousands of dollars on your next home loan.
Your Good Faith Estimate is Just an Estimate
The most important thing to understand about the Good Faith Estimate is that it is just an estimate. Mortgage brokers frequently lowball loan processing fees to make their loan offers appear more attractive. Brokers also frequently leave their markup of your mortgage rate off the Good Faith Estimate completely. If the Good Faith Estimate is unreliable, what can you use to get a good idea of what your loan processing fees are?
The good news is that the HUD-1 will accurately reflect all of your loan processing fees and markup. The problem is that you will not typically receive this document until 24 hours prior to closing. Once you have reconciled the loan processing fees and markup on the Good Faith Estimate with your HUD-1 statement you will need to have a heart-to-heart discussion with your mortgage broker about any discrepancies you find.
Beware Mortgage Junk Fees
There are a number of junk fees on your Good Faith Estimate and HUD-1 statement that you need to be aware of. One of the most notorious junk fees is the so called “rate lock fee.” Mortgage brokers charge this fee for “locking in” your mortgage interest rate. What you need to know about rate lock fees is that lenders do not charge your mortgage broker a fee for locking your rate. This fee is entirely invented by your broker to line their pockets at your expense and is complete garbage.
Other junk fees you need to keep an eye out for include broker courier fees, application fees, and loan processing fees. Many mortgage brokers try and justify their loan processing fees by telling you that they use a “professional loan processor” to prepare your file and charge you as much as $500 for the service. What do you get for your $500? Your “professional loan processor” will print out the required documents and mail the application and disclosure statements to you for signature, and then FedEx the entire folder to the underwriter for loan approval. Total “processor” time necessary, one hour maybe two…Is this paperwork shuffling worth a $500 fee? I don’t think so…do you?
Watch Out For Yield Spread Premium
If you’re not already familiar with Yield Spread Premium it is the markup your mortgage broker adds to your mortgage interest rate to get a commission from the lender. Many brokers leave this markup of your Good Faith Estimate altogether and then cleverly disguise it on your HUD-1 statement. When questioned about Yield Spread Premium many mortgage brokers get defensive, even angry. Your mortgage broker might tell you that because the fee is not coming out of your pocket you shouldn’t worry about it.
The problem with Yield Spread Premium is not the fact the lender is paying the broker a fee, but the reason the lender is paying your broker a fee. Your broker receives this fee because you’ve agreed to pay an above market mortgage rate and for no other reason. In fact, Yield Spread Premium is the number one reason people overpay for their mortgage loans and according to the HUD Secretary is responsible for overcharging homeowners in the United States nearly sixteen billion dollars each year.
Avoiding Yield Spread Premium needs to be your number one priority when applying for a mortgage loan. If you’d like to receive more advice about taking out a mortgage without paying too much, register for the free Underground Mortgage Videos available from this website.
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