Know Your Mortgage Fees, and Youll Never Pay Too Much for Your Loan

If you buy new windows, you'll not only pay for the windows, you will also pay an installation fee. When you purchase a car, you pay tax, title, assumption fee, etc. Just about every major purchase comes with extra costs or fees, and home loans are no different. Most people think they don't have to pay costs on a loan, because they are paying interest on the loan (they figure this is their fee - a premium on the money). A mortgage, however, does not come free.

While some are mandatory, others are not. Follow these guidelines, and you'll never pay too much for your purchase mortgage or refinance loan. The origination fee -- The fee that bothers people the most is the origination fee, or what some mortgage people call a broker fee. This is often confused with points, but should not be. Points are something completely different. The origination or broker fee is what you pay the loan officer to originate or create and complete your home loan, whether it's a purchase or a refinance. All mortgage people charge them, whether they work for a mortgage brokerage or for a bank.

Remember, if you're told there is not a broker or origination fee, chances are you're paying a higher interest rate, and this is how they're making this fee. The origination fee is the primary way mortgage brokers make money. The company gets the entire fee, and your broker or loan officer gets a percentage of that fee - somewhere between 30 and 65 percent.

So, if your mortgage broker charges you two percent on a $100,000 loan, this is $2,000 for his company or bank and up to $1,300 for him. You may think this is an outrageous amount of money, especially considering that this is just one of the costs you have to pay, in order to complete you loan. It might be, and then again, it might not. It depends on what type of loan you get, how much work is involved in closing it, and the quality of the service you get. Here are a few guidelines on what you should be willing to pay in origination or broker fees.

Bad credit's effect -- If you are a sub prime borrower, or someone with credit problems, expect to pay more - up to $3,000 or $4,000. Remember, sub prime, or non-conforming, borrowers have some type of baggage that makes them difficult to get approved, which is a huge part of the mortgage professional's job. They may, for example, have a recent bankruptcy or foreclosure on their record, or a civil or criminal judgement, tax liens on the property, or very little equity in their home. These are problems that good mortgage professionals can get around, but it takes a lot of time and effort.

I once helped an elderly gentleman on a fixed income refinance his home, and he had 14 liens against his home, all of which had to be satisfied, before his mortgage could be paid off, and he could get a new loan. I had three weeks, and probably 25 hours of time, just clearing these liens. One of them was a defaulted car loan on a car he didn't even have. He owed $3,000, hadn't made a payment in three years, and the bank was still after him. I had to negotiate with the collection agent from that bank, and get them to take $1,800 to satisfy the loan, which I would work into his new mortgage. After many telephone conversations and some very hard selling, they agreed, and I wound up getting it done.

Now, I would have normally charged a minimum of $2,500 (over five percent of the loan amount, in this case) for this type of work, but there was not enough equity in the house to get that much origination in the loan. I actually did it for less than $1,000 ($500 of which was mine), just because I wanted to help this man, who needed the cash he was going to get from the new loan to put a new roof on his dilapidated house. This is just one example of when it's acceptable to pay more in origination fee, even though this man didn't have to do so.

Conversely, let's assume you're refinancing your home in a perfect scenario. You have perfect credit, lots of equity in your home, plenty of cash reserves, and the paperwork is very easy. The loan officer says he can complete your loan in two weeks, most of which will be consumed by the work of other people, such as title agents and an appraiser. This origination should not be much more than one percent of the loan amount and even smaller, if the loan amount is over $150,000. This is a loan that mortgage people refer to as "A Paper." It is very easy to close, and takes very little work, so the loan officer can make his money on volume, by doing lots of these types of loans. I always charged $1,500 or less for an A Paper loan.

So, begin learning your closing costs by finding out what the origination fee is (remember, most of the time it's negotiable). One to two percent of the loan amount is acceptable, unless extraordinary circumstances exist.

Mark Barnes is the author of the new novel, The League, the first work of fiction, based on fantasy football. He is also an investment real estate and home loan finance expert. Learn more about his suspense thriller at http://www.sportsnovels.com Get his free mortgage finance course at http://www.winningthemortgagegame.com

Seattle Post Intelligencer

Principal is key to housing solution Winston-Salem Journal, NC - Oct 10, 2008 By Zagros Madjd-Sadjadi The landmark bailout legislation signed by President Bush will not assist one homeowner who is currently making his or her payments ... Video: Obama: 'Taxpayers Shouldn't Pick Up Tab' AssociatedPress Taxpayers, Not Lenders, Would Bear Costs of McCain’s Mortgage Proposal New York Times Obama Ad Attacks McCain Mortgage Plan RTT News all 883 news articles

Mortgage rescue plan would be costly, and may fall short Detroit Free Press, United States - Oct 9, 2008 John McCain's surprising and decidedly nonconservative proposal to refinance troubled mortgages directly through the government has some appeal. ...

Bad Credit – Home Mortgage - Refinance and Debt Consolidation Loan ScienceBlog.com, CA - Sep 16, 2008 Based on interest rates, Mortgage Refinance California can be divided into two types namely fixed rate and adjustable rate loan. In the case of a fixed rate ...

Economic Downturn Puts Brakes On Many Major Region Projects TheDay, CT - 2 hours ago The project's $8.6 million construction loan originally came from Dime Bank and appears about to be transferred to New Haven Mortgage Refinance LLC, ...

Help for homeowners Shreveport Times, LA - 5 hours ago Nine states have created mortgage refinance funds to help borrowers avoid foreclosure. Twenty states have partnered with the Homeownership Preservation ...

New London OKs Expansion Of Condo Project TheDay, CT - Oct 10, 2008 But in the past month, contractors released the liens; at least one settlement check was written by New Haven Mortgage Refinance LLC, a company attached to ...

Mortgage refinance boom short-lived Salt Lake Tribune, United States - Sep 17, 2008 A worker paves a sidewalk during construction of a new home in Palo Alto, Calif., on Wednesday. Construction of new homes and apartments fell last month to ...

Is this the right time to refinance? Chicago Tribune, United States - Sep 25, 2008 Mortgage rates are down and you're not going to bother trying to sell your home anytime soon. Should you spend the money to refinance and lower your ...

Killer Startups

FreeHomeRefi.com - Mortgage Refinancing Resources Killer Startups, FL - Oct 10, 2008 ... mortgage refinancing done in a simple way. “Free Home Refi is committed to providing consumers with a home mortgage refinance with no closing costs. ...

Worthy foreclosure rescue? Philadelphia Inquirer, PA - Oct 5, 2008 By Alan J. Heavens The federal government's latest efforts to prevent foreclosures are getting a lukewarm response from economists, officials and advocacy ...