I’m an experienced RE investor (8 yrs) with excellent credit (750 or better FICO), very strong W-2 income and substantial assets. Currently working with a new loan broker (located in VA) where I have not invested for many years.
The property I am purchasing is a fairly new duplex in excellent condition for $175k. However, to get a loan I’m paying for a $1200 broker fee plus $500 for loan processing plus $200 for underwriting. For a std. 30 yr. fix with 20% down, the rate I’m being offered 7.5% (a 5/1 Int only ARM was 7.125%). It been about 18 months since I did my last deal out here on the West Coast so rates are up, but the broker fee is about 3x what I normally pay and the rate does not seem that good. Obviously, loan brokers get paid thru a combination of Yield Spread Premium and loan applicant fees.
I’m looking at a 40 year due in 30 with a 3 year hard pay based on the details you provided. In this scenario the broker would make 1.375 in YSP and your PITI payment would be $895.54/mo…processing fee would be $595 and lender fees would be $795.
Side by side:
Your lenders PITI: $978.90
Other lenders PITI: $895.54
Your lenders CC: $1,900.00
Other lenders CC: $1,390.00
So…Yeah, you and your broker could both do a little better. :
With no points and no prepayment penalty, your deal may not be bad. Is there a prepay penalty and are you paying any points above and beyond the broker fee?
I went and pulled some paper on some old loans to look at fees. My broker here on the west coast has a bunch of smaller fees so there was no single big ticket number like my east coast guy.
I think this highlights an issue in the industry whereby a bunch of different fees can be cobbled togther to form the compensation package for the loan officer/broker what have you. While these different buckets of money end up in different people’s pockets, one thing is for sure is its leaving mine.
I think all of this can be extremely comfusing to people new to purchasing real estate. I’ve done over 25 loans in 10 years and still come away with this not so good feeling of “am I getting taken to the cleaners”.
In all fairness, I have to say I also made the mistake of ASSUMING the broker fee would be like $300-$500 becuase I have always paid about that to the half dozen different brokers I used over the years.
Fees can definitely vary greatly from broker to broker, and they don’t all go into the broker’s pocket, you are right. Most of the time, the only fees that would go to the broker’s compensation are points and broker fee.
If you want to contol the fees get your LO license. Run your deals through your company. There are a bunch of folks at my office that do that…it’s the only reason they have the license.
… a good rule of thumb to remember is that most LO’s will not do a deal unless they are pocketing atleast $750.00…Be upfront with the LO. Ask them what kind of split they are on with their office. Negotiate the exact amount that they will have in their pocket at the end of the deal before you start talking about programs and rates.
I hate quoting rates without knowing everthing… but you you should be able to get a 1st mortgage of 6.875% (7.127% apr) 30yr no prepay.
Patrick’s right about checking with your mortgage consultant about how they get paid. I always ask my clients how long they plan to hold the property. If they are only going to use my loan to purchase and quick sell, then I will not making anything in yield spread from the rate because of recapture policies. If the loan pays off in the first several months the lender could require any premium paid out to be sent back. In that case I will charge a higher origination to compensate me for my service. I know this may not apply to your scenario as the interst rate seems high and means he’s probably making yield spread too.
I have a set fee for each loan that I do, no matter how big or small the loan is. Sometimes I may need to charge a premium because of extra services. I leave this up to the client and what their intention is with the property on how they want to structure. Those that are holding for less than 4 months will have the rock bottom rate but orgination is higher. Those that are holding for a year or so will choose higher rates with less costs. (Obisously the slighty higher monthly interest will be less). Anyone keeping long term will usually have more in originatio as well because they want the lowest payment for 10-15yrs. (just like paying discount points to lower the rate which I recommend for long term).
Remember that you pay for the service you get. The knowlegde that one person can have as a mortgage consultant that specaializes in investment can be priceless down the line.
I’m glad somebody said it. You pay for what you get. Excellent finance strategy is priceless. When you are moving hundreds of thousands to millions of dollars. Having the right organization backing the deal can end up costing a little more money up front, but saves you thousands of dollars in the end. Possibly putting you in position to make more money than you planned on. What kind of fee comes with having a good attorney? lawyer? accountant? Would you want to be on trial and take the cheapest lawyer in the books, never. A professional fee is backed by a professional service. Make sure you don’t catch yourself chasing rates & fees, you might miss what really counts, EXPERT STRATEGY! My company works with investors nationwide and a lot of time my investor’s make more money through hard money & strong strategy. Which has NOTHING to do with competitive rates or fees. Just making the cashflow and capital work in any given situation is where the real investor’s shine. What if conventional rates go back up to 15% like the 80’s? Do you think investor’s will stop buying. This is where they start buying, because it’s now a buyers market. All emails welcome.
