Profile picture for keeper080

Is paying origination fee reasonable for a 30yr fixed FHA loan @ 3.87%?

I have 2 offers from lenders and would like to know which deal is best (I'm considering option b): a) 3.87% with 1% origination fees and lower closing costs b) 3.75% with 0 origination fees and higher closing costs Also, how do I get that 1% back, if at all?
  • February 07 2012 - Houston
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Answers (16)

Keeper,

Following up here. I didn't see your reply earlier about the loan amount of $255K


At 3.75% there should be NO origination fee. And many of the closing costs can be covered by the lender as well.

Again.... Some lenders have a lot of flexibility in how they 'price' your loan.

Good luck!!
  • February 07 2012
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John,

We all know that there are fees associated with every transaction, it's just a matter of how they are paid for. 

Assume today @ 3.75%  would rebate 4.089% for that rate.
Let's also assume the loan officer is on a 2% comp plan (Generous) that would earn them $5100.

This would leave $5326.95 to pay for whatever is left that needs to be paid for. I can't see a scenario where that is not enough, in fact, it's probably enough to pay all the remaining fees as well as the UFMIP.

3.75 paying only the origination is not even close to being fair, by my calculations there is over $5000 worth of credit missing and that assumes the loan officer is getting 2 points. If the loan officer is getting 1 point, over $7600 is missing. 

They should shop for someone with a more aggressive rate sheet. I'm guessing from your utter amazement at the numbers I am stating, that this would not be you.
  • February 07 2012
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Keeper, please shop around. The 3.75% rate you have been offered is NOT "fair" unless all your fees are paid.
  • February 07 2012
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@ professor - Thank you for the reply. To clarify, I am not 'ripping' anyone off. I have a set dollar amount that I receive with my company, so whether someone gets a 3% rate or a 10% rate, I am paid the same. I appreciate your feedback and would suggest that you not accuse anyone. I was merely asking a question because I had not heard of anyone offering a 3.75% rate with ZERO fees (keep in mind that when you say zero, I assume you mean lender, appraisal, title, survey, etc). Is that what zero is to you? (again, not accusing you of anything I am looking for feedback). Thanks!
  • February 07 2012
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Keeper 3.75% with no origination fee is fair. That would include about $900 in processing/underwriting/misc bank fees + 3rd party fees + prepaids. Most lenders should be able to do this. Remember, many of these loan officers out there do not set their rates... the bank does. Some of us have flexibility. Origination fee is a closing cost. So you need to be sure you compare apples to apples.
  • February 07 2012
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John, what lender are you talking about that cannot do 3.75% on a 255K loan with no fees? FHA 30 4.0% -5.308 3.875% -4.603 3.75% -4.089 3.5% -1.433 These are borrower paid so add your comp plan on top of that. If they are trying to make 1 in origination, that leaves 3.089 for fees. ($7876.95) Are you saying you have more than $7876.95 in non-origination fees to close a 255K FHA mortgage? In fact, you could pay the UFMIP and still have enough to cover closing. Even if they have a 2 point comp plan that still leaves $5326.95 for fees A 3 point comp plan leaves $2776.95 and if this is a refinance it would still cover the non origination fees. What are you charging people where you work? Sounds like you are ripping people off too.
  • February 07 2012
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@ professor - Which lender do you use that 3.75% (today) has no fees? The only lenders currently offer that deal (that I am aware of) are changing the deals as it moves forward. Suddenly there are fees or the rate changes, they redisclose to save themselves any fees, but its because they could not offer that deal in the first place. I agree that 3.75% may have no origination or discount, but to receive a 30 year rate today, there is not an option for 3.75% and no fees (keep in mind that I am thinking we are talking about a fixed rate product here). @ Keeper080 - You certainly want to shop around. Some companies are charging an 'origination' fee and then are offsetting the fee with a lender credit due to a slightly higher rate. Others will not charge an origination fee, but there is no discount. Overall, it may be the same amount of fees but is just deceiving because the 'origination fee' is listed. Always get a few quotes to ensure you are getting a great deal but done let that be the ONLY factor. The lowest fees does not mean the best service. Dont pay too much, but beware of the low ball offer as well. Sometimes its too good to be true... suddenly you are not receiving return calls, delayed closing, etc. Look for referrals from family and friends that recently purchased or refinanced. Paying points is not a bad idea, if you plan on living in the home for more than 5 years (in most cases). But only if that point is lowering the rate by AT LEAST .25%. Otherwise I would not suggest paying a point to lower the rate .125%. The monthly savings will not justify the fee unless you are in the home almost 10 years from now. Maybe you will be, that is your call. Just do the math and go with what makes sense to YOU. Good luck! Feel free to reach out if you have any further questions.
  • February 07 2012
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I'm with the professor, keep shopping
  • February 07 2012
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You are getting screwed with both of those deals with a 255K loan amount. @ 3.75% you should not be paying anything; no origination, no points, and no fees. You definitely need to shop around.
  • February 07 2012
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Profile picture for keeper080
Thanks all! @Professor- the loan amount is $255k. @Clay & KKSka- that's also what I was thinking..how can the closing costs be lower when you are charging 1% in origination fees. Both lenders are willing to offer a lender credit & cover the title insurance. I understand that it maybe best to shop around some more but does option b (3.75% at 0 origin fees) seem like a fair shake?
  • February 07 2012
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Profile picture for GMerino
I would also suggest to shop around.
  • February 07 2012
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What is the loan amount?
  • February 07 2012
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Profile picture for KKSka14
Good catch, Clay. That does seem backwards. I was making the assumption that the lower rate had the points. Yeah, I mean, the closing costs would have to be SUBSTANTIALLY higher to justify the higher rate and the point.
  • February 07 2012
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This sounds backwards, if the 3.875% offer has 1% origination not sure how it could have lower closing costs than the offer at 3.75% with no origination. The origination fee is a closing cost so add that to all other closing costs to compare ( do not add prepaids which includes an escrow for taxes and insurance ). You may be looking at the total settlement costs which can be deceiving if someone is only quoting 2 months of taxes and insurance. What you should be seeing based on today's rates/pricing is a lender credit that exceeds the 1% origination fee at 3.75% or an offer for 3.75% with no origination fee and a smaller lender credit that is applied towards the other closing costs.
  • February 07 2012
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Profile picture for KKSka14
It depends entirely upon what your holding period is. The after-tax payback on paying a point is 8.5-10 years for 1/8 better note rate. Unless you need to buy the rate down for debt-to-income ratio reasons, it probably doesn't make sense unless you are planning on staying in the home for well over a decade.
  • February 07 2012
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Profile picture for shapiroamg
At 3.75% or3.875%, I would expect no other fees other than the traditional closing fees: lender processing and/or underwriting (funding or Admin), appraisal, credit, tax service and assorted costs with title services. Mind you I am in MA and rates can vary from state to state. I would suggest shopping around a little more.
  • February 07 2012
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