A couple of years after I retired form the mortgage industry, I received a call from a family friend in Tallahassee, Florida and in the course of the conversation he revealed that he was in the process of refinancing a $350,000 mortgage on his home. He couldn’t escape a gut feeling that he was getting the run around and his discomfort was more than justified. Knowing and applying what I’m about to share with you he has over a five year period saved a little over $6,766 in excess interest payments.
I cite his experience for a couple of reasons. First, it’s important you understand that the savings I’m talking about isn’t a matter of nickels and dimes. Secondly, I
think it’s important to understand that lender pricing abuse isn’t limited to the undereducated and/or less affluent. Make no mistake, lenders are equal opportunity abusers and given the opportunity, few can resist charging a consumer more for a mortgage than he needs to pay. It’s common sense to understand that the costs associated with obtaining a larger mortgage will naturally be greater than the costs associated with a smaller one. If you are buying a $200,000 home and making a 20% down payment or refinancing a $160,000 loan, most loan officers will usually charge a 1% origination fee or $1,600. On the other hand, if you are in the market to buy a $1,000,000 home making the same 20% down payment or refinancing an $800,000 mortgage, that same 1% origination fee could run as high as $8,000.
It may, however, come as a surprise to you that if you deal with the right lender, you may be able to negotiate a significant reduction in the lender’s origination fee if you deal with the right lender and have excellent credit. This isn’t to say that the credit challenged borrower can’t negotiate a lower origination fee. It’s just easier if the loan officer knows you can easily take your business elsewhere.
If your loan is a no-brainer – you are salaried, have gobs of money in the bank, a solid work history and have in your hand your most recent paystub, the last two year’s W-2s, and past three months’ bank/retirement statements to show reserves – there’s no legitimate reason for the loan officer to charge you what he charges everyone else. You’ve basically done his work and there’s really no reason he can’t cut you a break. As you will soon discover, some loan officers are free to negotiate your origination fee, some are not.
What may come as a real surprise to you is that while the origination fee the loan officer charges may seem high, it is the least of your worries. If you don’t control what he stands to make in undisclosed or under-disclosed fees (overage), you will end up paying a great deal more over the long run. To understand then how the good doctor avoided paying over $6,700 in under-disclosed fees you will first need to come to grips why should you always buy your mortgage through a mortgage broker.
