Rate is certainly big piece of what constitutes a good deal but you have to consider how much it costs you to get that rate. I say this a lot, there are no magic loans, no magic lenders and no magic pricing. Lenders and brokers have access to the exact same money at pretty much the exact same price.
When comparing loan option between lenders don’t just compare the rate. You need to look at the costs associated with the loan. This is the part that gets complicated. Lenders can essentially create there own fees to hide costs or to make costs appear less than they really are. The list of what I call Junk fees looks something like this:
Processing fee, document prep fee, wire fee, underwriting fee, commitment fee, appraisal fee, credit review fee, Origination fee, Discount fee, courier fee and the list goes on.
Some lenders may jump all over me for calling some of those fees junk fees. Some are actual 3rd party fees and are actually paid to someone other than the lender or broker, however from the consumers stand point does it really matter who is getting the money?
I never got the distinction between something being a lender fee, third party fee or a junk fee. If money is comming out of your pocket and going into someone else’s it is a cost and you need to make sure that when comparing loans you consider all the fees you are paying not just some of the fees. It’s like when you go to the grocery store to do the weekly food shoping and end up picking up odds and ends (cleaning supplies, diapers, light bulbs…whatever). If you don’t budget for the odds and ends when you go to check out you won’t have the cash to pay the cashier.
Rates and fees are a See Saw…Lower Rate/Higher Fees…Higher Rate/Lower Fees. Which makes the most sense for you will depend on your personal situation. The fees are an important part of the equation, without knowing what the costs are the lower rate will always appear to be the best deal, you may be paying a steep price for bragging rights!
Last 5 posts in Uncategorized
- A Question That Doesn't Get Asked Nearly Enough..... - November 27th, 2009
- "So, What Does The Dow Mean?" - November 25th, 2009
- One more way to stay in your home - November 23rd, 2009
- Renovation Financing: Can I change Contractors? - November 14th, 2009
- Understanding Adjustable Rate Mortgages Part III - November 13th, 2009
- Stumble it!
- Categories: Uncategorized
Comments
5 Comments so far
Dan Melson
Actually, of the ones you list, none are universally junk. Actually, only one (credit review fee) is often junk. All of the others are costs you are going to pay in pretty much every loan transaction, and someone who pretends otherwise is lying. Lying by omission, but still lying.
The issue is that law and regulations do not require the disclosure of third party fees, and they don’t enforce limiting the actual fees to the initially disclosed amount on any fees.
An honest lender will disclose and guarantee the total of all costs, and by guarantee I mean “anything over this comes out of the lender’s pocket, not the borrower’s”
But you are correct in that you cannot judge a loan without knowing the cost, and if you don’t know the real costs, you cannot make an informed judgment. Furthermore, if one lender is honestly disclosing and another is not, the game is currently weighted towards the one that does not. The sooner the law gets around to fixing this, the happier everyone but the liars will be.
JYD
Adams, I think it is safe to assume that most borrowers who read your article now (or still) think mortgage brokers are sneaky, and are up to no good. By design, perhaps they also believe YOU might be on their side and that YOU are doing them a service since you pointed the “junk” fee phenomenon.
The message in your article actually has zero bearing in a consumer finding the right mortgage company to do business with. This article, and talking about the “other” guy’s fees, is an example of the “getting-jerked-around-by-the-mortgage-guy” game. This game playing results in “paralysis by analysis”, where Adams made himself look good, but no mortgage gets written and no home gets bought and no customer saves money by refinancing.
This article has effectively kept the general perception of mortgage brokers in the “used-car salesman” category.
Just so everyone reading knows, there are actually mortgage brokers and loan officers out there who are professional and care about quality service. Whether a fee is “junk” or not, is a complete waste of energy.
When you go into the hospital for a transplant or a broken arm, are the doctor’s itemized fees considered “junk” fees? Do you ask several doctors for price quotes before they cut you open?
A real estate transaction is huge. That’s why mortgage brokers make a lot of money, and in many cases they make more money than doctors and lawyers! Do you this is because of $450 processing fees? It’s because a home is a BIG DEAL and the demand for quality service has always been there.
If it is truly your priority to save $300 in closing costs when there are hundreds of thousands of dollars involved, then there is a higher likelihood you aren’t financially prepared for the responsibilities of owning a home.
Mortgages are not a commodity yet, but it is the loan officers that jerk you around about the “junk” fee the other guy is charging you, those loan officers are the commodity.
Perhaps this “Magic Lender” that Adams speaks of, is the loan officer that will treat this transaction like your pediatrician treated your daughter’s health?
To everyone reading, please understand that YOU ALWAYS GET WHAT YOU PAY FOR. After price checking, go with the mortgage company you are most comfortable with, probably the guy/girl who most sounds like a doctor on the other line. Bedside manner, anyone?
Andrew Adams
JYD,
I knew the term Junk fee would offend….
It got your attention and if you notice most of the fees I mention are in fact 3rd party fees that go hand in hand with any transaction. The point of the post is too simply point out that when looking at your loan options make sure to consider the actual costs and regardless of what fees are charged you need to consider those in your decision.
You have a mighty high opinion of loan originators. Comparing what we do with a doctor taking care of the health of our Children. The purchase of a home is likely to be the largest financial decision a consumer takes in their life a little due dilligence is a wise choice. Being such a big investment, I wouldn’t trust it to the cheapest broker on the street. If that’s how you read the article I need to do a better job making my point.
Jennifer Monastero
Andrew, I understood you.
JYD- I really just think he meant that people need to look at rate, plus costs, to see what sort of deal they are really getting. One’s processing fee might be $250, while another company charges $995. Of course there is a difference there!
David G from Zillow.com
“I knew the term Junk fee would offend….”
NICE
I knew you were a blogger