How to Avoid Paying Any "B.S." Mortgage Fees When Refinancing a Home!
At Michigan Mortgage Solutions, we get a lot of phone calls from borrowers wondering if the lender they’re working with is giving them a good deal. The problem with answering that question is that it’s 100% dependent on the accuracy of the numbers used to create the “Good Faith Estimate” within your mortgage application.
The “Good Faith Estimate” will include all of the costs associated with the mortgage as well as the estimated cash needed to close. However, the Good Faith Estimate does a poor job of itemizing the costs by itself, so it’s best to also ask your lender for a “Mortgage Cost Worksheet” or a “Fees Worksheet” as they are much more detailed.
The worksheet will break the mortgage costs down into two categories which are “Prepaid Closing Costs” and “Lender Closing Costs”. At closing, the “Prepaids” will be identical from lender to lender because these costs are all based off of the same numbers. “Lender Closing Costs” can vary widely from lender to lender.
Financing a home is typically the biggest financial decision you’re going to make and if something doesn’t feel right or you’re not getting the service you feel you deserve, it’s best to find a lender that meets your needs. You are not obligated to do business with any lender and you should go into the transaction believing that the lender is there to earn your business.
Prepaid Closing Costs
“Prepaids” include items like establishing your escrow account, paying past due taxes, homeowners insurance, and any prepaid interest. When refinancing, it’s really easy for your lender to get the correct property tax information as well as your yearly homeowners premium because you can provide it. Once these correct numbers are obtained it simply comes down to doing the proper math.
The problem is that most lenders fail to use the correct numbers and often times the correct math when estimating these costs. I’m not exactly sure why this is but I believe it’s a combination of poor training and simple laziness. The “Prepaids” have a huge impact on your closing costs so it’s very important to have these numbers dialed in from the start to avoid any nasty surprises at the closing table.
Quick Tip - If you are shopping your mortgage lender against the competition, DON’T consider the “Prepaids” within the comparison. Even though these numbers are very important to your closing costs, they will be identical from lender to lender at the closing table. DON’T be fooled by someone claiming to give you a better deal because their “Prepaids” are lower.
Lender Closing Costs
“Lender Closing Costs” are what you should be paying the closest attention to when comparing lenders because the majority of these costs are controlled by the lender. I’ve broken these costs down into two categories; Lender Fees and Title Company Fees. Lender Fees and Interest Rate are what you should be comparing between lenders as the Title Company Fees should be identical across the board.
These costs include but are not limited to the following;
Origination Fee - This is compensation paid directly to the lender / broker
Application Fee - This is compensation paid directly to the lender / broker (We Don’t Charge This Fee)
Appraisal Fee - This is paid to a licensed appraiser to determine the value of the home
Processing Fee - This is compensation paid directly to the lender / broker (We Don’t Charge This Fee)
Underwriting Fee - This is a fee paid directly to the lending institution originating the mortgage
Admin Fee - This is compensation paid directly to the lender / broker (We Don’t Charge This Fee)
Credit Report Fee - This covers the cost of your credit report
Tax Service Fee - One time fee to allow lender to verify and update property tax information
Flood Cert Fee - One time fee to allow lender to determine if home is in a flood zone
Title Company Fees
Closing Fee - Paid to Title Company for completing the closing
Title Insurance - Paid to insure that the title on the home is clear of liens (Percentage of loan amount)
Recording Fees - This is paid to the county recorders office to record the mortgage and deed
Condo Questionnaire - This is only needed if you are purchasing a condo
Quick Tip - If you are shopping your mortgage lender against the competition, DON’T consider the “Title Company Fees” within the comparison. The Title Company is chosen by the Listing Agent and the buyer is subject to whatever that title companies closing fee is. Title Insurance is a percentage of the loan amount so at close it will be the same from lender to lender. Recording Fees are based off of the number of pages that are recorded and therefore will be identical from lender to lender.
Now that you have an idea on the costs associated with a mortgage, I’d like to go into more detail on which ones are negotiable and therefore comparable. First off, the “Prepaids” and “Title Company Fees” are pretty much non-negotiable because they are almost always a fixed cost.
Negotiable Lender Fees
When it comes to “Lender Fees” there are four that are negotiable. These include the “Origination Fee”, “Application Fee”, “Processing Fee”, and the “Admin Fee”. Of the four fees, the “Origination Fee” is really the only fee that I don’t consider a "B.S." Fee and I’m sure you can guess what I mean by "B.S."...lol! The reason I believe the other three fees are "B.S." is because we never charge them so I don’t think you should have to pay them.
The “Origination Fee” isn’t a "B.S." Fee because in certain circumstances a borrower can get a lot better interest rate by paying an “Origination Fee”. At Michigan Mortgage Solutions we go over multiple scenarios demonstrating the benefits of each and leaving it up to our client to decide which is best for them. With that being said, the majority of the loans we close do not include an origination fee.
When comparing lenders, you must also consider the interest rate as well as the costs. Interest rates change on a daily basis and sometimes several times per day. For this reason, the interest rate that you are quoted from any lender can change until the rate is locked-in. Most lenders provide their “Good Faith Estimates” based on that day’s rates so comparing them against each other still makes sense even if the rate is not locked in yet.
However, lenders also provide a lender credit in some cases to help the borrower cover some of the costs. In most cases, a lender credit is the result of offering a slightly higher interest rate. It’s very important for you to determine if you are getting a lender credit when comparing lenders because this will affect the closing costs as well as the interest rate.
Out of Pocket Costs During a Refinance Transaction
When you refinance a home, you’ll incur some out of pocket costs prior to closing. These costs include your Appraisal Fee.
Appraisal Fee - After completing your mortgage application you will need to pay for an appraisal of the property to ensure that it is worth what you are looking to refinance it for. The lender will only lend you up to 95% of the appraised value. This Appraisal Fee is collected by an Appraisal Management Company, AMC for short, which is a third party that manages licensed appraisers. Lenders have no direct contact with the appraiser and must handle everything through the AMC. Lenders have no control over this fee and it’s $350 to $525 depending on the type of mortgage it is.
Now that you have a better understanding of the fees associated with your mortgage, feel free to call us today at (248) 674-6450 to get pre-approved. If you're interested in more information I believe you may find the following articles useful;