Mortgage lenders may be offering loans at record low rates, but that doesn’t mean the loans are coming cheap. In fact, some borrowers may see much of the initial savings they’d realize from lower rates wiped out by closing costs, fees that are on the rise as lenders seek to pad their bottom lines.
It is no secret that lenders are struggling to make mortgages on a profitable basis. Simple math will require a lender to increase its profitability by an increase in fees in order to survive.
As homeowners rush to lock in rock-bottom mortgage rates, which are great for the home owner, it also starts to incur administrative costs, even if the loan doesn’t close. Should the borrower fail to get approved, change his or her mind or jump on a lower rate elsewhere, the lender is still on the hook for the costs.
As these locks fall out, each loan gets more expensive for you (as a lender), so you pass on that cost. As a result, borrowers may encounter higher underwriting or administrative fees, along with bigger charges from appraisers, mortgage insurers and mortgage finance companies Fannie Mae and Freddie Mac.
When shopping for a mortgage, ask lenders to provide you with written good-faith estimates so you can compare costs. If you are looking into a FHA mortgage please spend time with you lender and understand the up front Mortgage Insurance Cost and how it is applied. This will eliminate a lot of confusion when it coming time to close your loan.
Some possible additional fees are called administrative, application, underwriting or processing charges; these fees are on the rise as lenders compensate for the lower-rate loans that they offer to be competitive. These fees will only get worse if Congress passing legislation banning yield spread pricing.
While charging an application/origination fee of 1% of the loan amount is normal, piling on several additional charges may not be normal. Be sure to compare several lenders’ fees and question anything that seems redundant.
This is the latest move and it really hurts. On April 1, Fannie Mae and Freddie Mac yet again increased fees for loans they purchase or insure. Depending on a borrower’s credit scores and the size of his or her loan relative to the home’s value, these so-called loan-level price adjustments can range from 0.25% to 3% of the loan. Another 0.25% to 3% is added for cash-out refinancing (when borrowers refinance with loans that are bigger than what they owe on their existing loans so they can have some cash left over).
For someone in the credit score range of 660 to 679, a 30-year fixed-rate mortgage that is 85% of the home’s value would incur 2.5% in fees. (Before April 1, that same loan would have cost 1.75%.) And if the borrower took out cash, another 2.5% would be added, for a total of 5%.
To figure out if you’ll be hit with these charges, ask your lender or mortgage broker whether your loan will be sold to or insured by Fannie or Freddie. Today, that’s the case for 56% of all outstanding mortgages.
Here is the latest cost hit and it is thanks to the Home Valuation Code of Conduct. A set of regulations on property appraisals that went into effect May 1 which states, “Lenders that deliver loans to Fannie Mae and Freddie Mac are now prohibited from selecting or communicating with appraisers.” This will cause all Banks, Brokers, Credit unions or whatever other Lending source to collect appraisal fees up front whether the loan goes through or not. The new average appraisal fee is currently $495.
If a borrower wants to refinance a home she thinks is worth $300,000, for example, but an appraiser values it at $200,000 and the loan doesn’t go through, the appraiser still has to be paid.
Because the new rules forbid Loan Officers from having any ‘substantive’ communication with the appraiser, they won’t know whether the property value will be enough to structure and price a loan until the appraisal is completed. Loan Officers where, prior to May 1st, able to get comp check values to get a rough idea if a property had the value needed to obtain a loan.
Sometimes we have to be careful that we do not ask for to much as we just might get it. Many people cried foul when they got their home mortgages claiming that they where taken advantage of. What happened to buyer beware? What happened to taking responsibility for our on actions? Many lenders took a change on many of these people and they have paid the ultimate price as they are out of business today.