Save Thousands with a No-Fee Mortgage - Horse Spit!

Yahoo has a pretty good calculator for these transactions:

http://finance.yahoo.com/calculator/real-estate/hom-08

I do a lot of them for people who expect to keep the loan for five years or less. Depending on the day's pricing, they can offer a significant value.

Tom O'Leary

plannersmortgage.com

Make 'em throw an APR figure out there and commit to it.

Check this out and learn....no cost refi

There are definitely almost-no-cost mortgages out there. I am talking about cost in the 8xx section of the HUD statement.

I have done at least 5 financings where the following fees looked like this:

- APR competitive (equal) to the best, meaning 'par rate' = what the lender qualifies me for

- credit check $0 instead of $25 to $250

- application fee $0 instead of $100 to $500 (ditech used to charge $500 refundable)

- underwriting fee $0 instead of up to 2% of loan amount

- processing fee $0 instead of anything up to 2% of loan amount

Of course those 5 closings all had title insurance, prepaid interest, prepaid property tax, prepaid hazard insurance, Fedex fee etc etc. I don't consider these fees.

Different loan officers work different ways. Some make 2 loans a month and charge big fees ($0 yield spread premium). Others make 20 loans a month and get bonuses. I prefer to work with the second type. They are 'in-house' e.g. employees of BofA, citi, Wells etc.

The first type is "independent".

To each his own.

-Peter

P.S.:

On top of all those $0 fees, citi gives a $500 'gold credit' towards title insurance. Or at least they used to. I got my last $500 'citi gold credit' in January 2008.

NOBODY WORKS FOR FREE!

If somone is paying $9,000 to close a loan they are being screwed.  Lenders and brokers are comensated exactly the same way the difference is a broker is required to disclose the compensation on the Hud-1 and a lender doesn't.

The truth is that lender or broker can offer similar rates and costs.  I am sure I will get hammered by a zillion brokers saying they can offer better rates than lenders because they go through wholesale and can shop for the best rate.  You will get the lowest rate from the loan officer that is willing to work for the least in compensation.

Be careful because you get what you pay for.  I have always said you want to get a fair price for a great product.

I get soooo frustrated reading all the threads by brokers so quick to trash a no-fee mortgage.  It does exist and no broker could touch it and I gave several a chance.  The rates they could get were not any better than what I got with the NO fee, NO PMI mortgage

Andrew, let's be fair here. $9k on $750K? A million? That sounds fairly profitable for the borrower to me. $200K is a different story.

But also, I've checked the broker rates before. Took a scenario my way through a well known lender that will remain nameless, and got a better rate by a half point than by running it in the front door with them. Fees and all the same throughout.

So, I still say that brokers get better rates. But I won't hammer you on it! ;)

I think it's important to take the mystery out of "no cost" loans. First, it's absolutely true that there is no such thing as a "no cost" loan; title costs are real, appraisal costs are real, recording costs are real and so forth. My hard non-recurring costs for a typical refinance run right about $2,500,and somebody has to pay them.

I do it by pricing in rebates, rather than vague and confusing terms. My rate offers to a client migh be (for example- not real rates) 6% at one point, 6.25% at zero or 6.5% at a one point rebate. If the loan in question is for $250,000, that one point rebate would pay pretty much exactly the costs. Stil, it's not a "no cost" loan, it's a loan where the costs are  paid by taking a higher rate, rather than out of pocket or by borrowing money to pay them. There is no free lunch.

It's a pretty straightforward calculation to see which option is best for a client, based on the specific pricing available on that day and how long that particular borrower expects to keep the loan. Since I'm a CA DRE licensed broker, I have to disclose my fees to the borrower, so all the numbers are on the table from the beginning of the process.

Tom O'Leary

plannersmortgage.com

I just don't think there is really any mystery.  There are a number of factors involved as to whether this "No Fee" mortgage is the best deal on any given day.  At the time of my loan, of all the lenders AND brokers I spoke with, not one could offer a rate better to "offset" the closing costs and PMI I would have had to pay with them.  For example, on the day I locked in at 5.625 with 1.081 pts (45 day lock - 30yr fixed - 5% down), the best rate I was quoted was 5.625 w/o points.  The $2k I paid with the points would not cover the closing costs I would have had, let alone the PMI I would have paid.  With that said, there may be days where a broker could offer a better rate that may in fact be better than the no costs, no PMI option over the course of the loan. 

Rick I have gotten into this so many times it drives me nuts.  I work for a small local bank that direct lends as well as brokers and I can put my portfolio rate up against the same players brokers do and if the wholseale rate is better I have the option to place it with them.

My point being is that not every bank will offer just their product some actually act as brokers and have the exact same pricing avaialbale to them.

The $9,000 is on a $300,000 loan.  I consider 3 points too expensive.

Rocketdog,

It sounds to me that you are talking about Bank of America's program that is CRA Money that they are giving away because they do not do enough to support the community based on the amount of cash that they have on deposit.

Andrew,

What is CRA Money?  So, if they are "giving it away", who am I to argue? I read a lot of speculation that the program won't last, which seems possible but my guess is they'll go back (I read the rates were higher than market during the early phases of the program) to having a slightly higher rate to cover some of those costs instead.  I'm sure there are many people willing to take a higher rate to pay less up front even if it costs them more in the long run. 

Andrew,

BOA's no fee mortgage is not a CRA (Community Reinvestment Act) product.  The rate is inflated to cover the costs.  We have the same thing.  Sometimes the loan works great, sometimes it doesn't.  Every lender out there can do it by premium pricing.....

I'd agree Andrew, 3 points is too expensive. I must have missed that.

And point taken about the pricing. I guess I've just never come across that. Although, I will say the other day you mentioned a wholesale rate and the subpar pricing for it at one of the more agressive wholesale lenders....I was getting that rate with greater-than-a-point better pricing.

So how do you explain that? Doesn't it simply mean I can offer a better rate?

Rocketdog-  

If that was a recent quote, I suspect that it was during a very volatile time in the market in mid January. It that's the case, we were getting four or five rate changes a day, big moves both up and down, and the deal you got (which looks pretty good) might have been more a function of timing (when you called) rather than who you called. In addition, the MI cost might have made a direct "apples to apples" comparison more difficult, since that can be packaged so many different ways.

Looking at MGIC's website for Borrower paid MI cost on a 95% LTV loan, it adds .75 points to the loan fee and .3% to the rate. Lender paid MI adds .37% to the rate (effectively 3/8th of a percent). Now, if you  telling me that the best quote you got for separate MI was at zero points plus normal costs, but you were able to get a lender to cover the MI cost AND not charge any closing costs for only a point more in fee, well you got an exceptional deal.

Tom O

I will be the first to say that BofA's program is not going to beat out other programs all of the time nor is it for everyone.  I just am amazed to see all the misinformation given out in what can only be seen as an attempt to draw people away from looking at the program.  I actually saw the rate go as low as 5.125% after I locked (Jan 4th) and then of course went as high as 6.625% yesterday.  I agree, the rates have been very volatile recently and while it is a matter of timing to some degree, I did shop around multiple places during the same time frame.  I do think I got an exceptional deal, especially looking at things now just two months after I locked in. 

It's important to note disclosures require that "No-fee", "No-cost"  reflect that the terms apply to out-of-pocket client charges.

These are not marketed as "Zero-Profit" programs...

Once you learn to easily educate your clients as to the differences - Life is much better............

Thanx, D

rocketdog1

That makes sense. I always encourage my clients to check a few sources, (usually because it makes my deal look better), but every now and then for some reason one of the big banks does something crazy, or has a narrow niche product (loans for public servants like  teachers and firemen, loans in certain areas) that I just can't touch. Sounds like you got one of those kinds of deals.

Tom O'Leary

plannersmortgage.com

Rick,

Different states have different SRP's so unless you compared it against a rate in MA the difference can be significant.  As of late Franklin American has been priced more aggressively than TBW and Provident in MA.

I didn't spend a tone of time looking for the lowest possible rate I just did a quick check.

Elender,

In MA BoA has a CRA Program the rate they offer is the same as a regular 30 year fixed upto 100% financing with NO PMI.  No real catch other than income and having to take a first time buyer education.  I pretty much pack up and go when I am up against it.  Not everyone qualifies and I have more than a few people call after they started the process only to say it's too much of a pain and opt for another option.

There are a couple niche products out there but I didn't think they would do it on a no cost basis is all I was saying...they usually restrict the income to 80% of median or something like that...I'm so used to using Rural Housing in those situations...the rate is better most of the time and allows greater income...

I wish I could use Rural housing it would be the only way to compete with it.  I am not even sure if they compensate the LO's on the program.  The Rep's I know at BoA try not to sell it.

Most of the big banks use Rural Housing as a CRA product....as far as I know they pay but don't allow overage or big spreads.  The other thing being there probably aren't a whole lot of people familiar with Rural Housing over there. 

Rural housing has acrerage requirements Most property I work with doesn't have a 1/2 acre.

Lower Rates doesnt mean much if your fees are through the roof...

Its always false advertising when on low loan amounts with adjustable rate mortgages.

Enrique, your thread and statement is baffling to me. You state the following above:

The headlines read, Save thousands with no-fee mortgage… Or No closing fees… Or No points charged… You know the ones. 

Of course being an adult, you realize that nothing in life is free

One of your recent quotes has these notes:

You will also get: Free Home Appraisal*, Free Copy of your Credit Report, Free Credit Makeover*, Free Financial Needs Analysis, Free Debt Analysis,

This sort of contradicts your statement above that nothing in life is free, right?

The interest rate I have quoted based on the information you provided includes “Zero Points”. At no additional cost to the borrower. 
1.5% Origination

Do you not know the 1.5% Origination Fee is considered " 1.5 Points "?  

You are bashing other LO's for stating " No Points " but you are also advertising the same thing AND charging points.

Clay- wicked old thread, but nice points anyway. He is probably old school- you know, when 'origination fees' were considered customary. Not sure why tarheel brought the thread back to life

It would be a lot easier if consumers just simply understood that EVERY mortgage loan has costs associated with it.  It is just a question of where these costs are going to be accounted for.  However, the reality is that consumers want to be sold no cost, no fee, no points, and be told all loan officers work for free type loans.  Loan officers, brokers, and banks advertise this way because that is what the market demands. 

If you are going to be in the home a short period of time, you are probably better off taking a higher rate and no fees.  If you are going to be in the home a long time, you are probably better off paying out of pocket to get the lowest rates available.