The Hidden Fees Of Getting A Loan
When we’re financing a large purchase, we should understand the terms and know all the ins and outs to ensure there is no funny business taking place. This is especially true with the self-induced negative reputation of the mortgage industry. Sadly, years of complacency, leniency, and misconduct fueled the largest financial collapse since The Great Depression.
As you can imagine, the mortgage industry has since been turned on its head. Congress, regulators, and lenders themselves have had their hands in the mix to improve and stabilize the housing and mortgage markets. Although many consumer-friendly rules are now in place, there are still areas needing improvement. Even with all of the documents and disclosures, it can be difficult for many borrowers to understand the important pieces of the mortgage puzzle.
I’m available to answer your questions, to help guide you through the process, and to ensure your success when obtaining your next mortgage loan.
Who Controls What?
ORIGINATOR: This is the entity producing your loan. The originator could be a broker, mortgage banker, credit union, or retail banker. It’s not uncommon for originators (or lenders) to have fixed costs for their services such as processing fees, underwriting fees, credit report fees, tax service fees, and more. Not only that, they’ll offer a rate (or rates) which may come with fees as well.
At the end of the day, you need to determine the originator’s total charges and what rate you’re being offered. This is what they, the lender, control in the process. The difficulty can be in determining what is truly a lender fee and what is not. As you’ll learn, these specific originator/lender charges are only a piece of the total settlement charges for obtaining a loan.
TITLE & ESCROW: When buying or selling real estate large sums of money may be exchanged. It’s imperative that a neutral third party handles the transfer of funds and related documents between the parties to the transaction. An escrow company will ensure all conditions of the sale are being met before the exchange is made. A property title is a tool in which ownership transfers from a person or business to another. In Arizona, it’s common to have a single company handle both aspects of the transaction. Title and escrow fees will be included in your total settlement charges.
PRE-PAIDS: Some items require pre-payment at closing. Per Diem interest is an example of just that. Mortgage interest is paid in arrears. As an example, if you close a loan on the last day of January, you’ll pay one day of interest at closing, and your first full payment will be due on March 1st (covering February’s interest accrual). If you close in the middle of the month, you’ll owe a half a month’s interest at closing. The day you close the transaction will influence your total settlement charges.
Also, two other common examples of pre-paids would be the homeowner’s insurance premium as well as any HOA payments. Although these items are selected by you (or come with the property you purchase), they are part of your total settlement charges to complete the transaction.
IMPOUNDS: Many loans require an impound (or escrow) account which primarily serves as a tool to collect and pay property taxes and homeowners insurance when they become due. With an impound account, one-twelfth of your taxes and insurance will be collected each month. In simplest terms, an impound account helps self-budget a borrower, making sure they’ll stay current on these two important bills associated with home ownership. Depending on the closing date, the amount of impounds required to fill the account properly may vary which ultimately influences your total settlement charges.
As you can see, various factors influence your total settlement charges. The originator (or lender) controls only a portion of these items themselves. Understanding what the lender does and does not control will aid in your ability to obtain a competitive loan and rate.
You deserve an originator who takes the time to explain and show how these variables affect your scenario. This process is critical to eliminate the opportunity for you to experience the feeling of being stuck with hidden fees.
Rules Designed With The Consumer In Mind
In response to the financial crisis, many new rules were introduced to help make lending safer and more consumer friendly. One of the biggest changes affecting residential finance came in October of 2015 called TRID (TILA/RESPA Integrated Disclosure Rule). This has commonly been referred to as the Know Before You Owe rule.
After taking an application, a lender is required to issue a Loan Estimate (LE) which sets forth the terms of the transaction to help a borrower determine whether they would like to proceed with the offered loan. Please remember, although an improvement, the LE does not necessarily constitute a rate lock and the settlement charges displayed are still estimates at this time of the process.
A true improvement in the process was the creation of the Closing Disclosure (CD). Think of this as the finalized and accurate mirror to the Loan Estimate. In the loan process, we work together to fill in the variables that make up your new mortgage loan. As we approach the closing date, we’re required to issue a Closing Disclosure (CD) at least three business days before closing. There is no longer a possibility of “rushing to the table” to sign documents of which you may be unfamiliar. This process applies to both purchase and refinance transactions.
My Commitment To You
The new regulations and disclosure rules in the mortgage industry have gone a long way to improving the consumer experience. Understandably, people still have questions and concerns with a purchase of this magnitude. Technology will continue to influence the speed and loan process itself. With that said, working with a trusted originator is as important as ever.
I’m available for you, on your schedule, to help guide you through the process. My goal is to help you understand your loan options in a way that is transparent and builds confidence. I hope to see you achieve your real estate goals by being a valued member of your team.