By: Kristin Abouelata
Not only are the expenses associated with a mortgage hard to understand, people often wonder why a loan costs so much. Here's a little background info to explain why home financing isnt cheap
Did you ever wonder what a great credit score really gets you in the mortgage market? Many people think it means they get better pricing. Unfortunately, thats not really the case. It mostly just means your lender wont have to hassle you for as much documentation to do your loan. In fact, no documentation may be required from you at all if its a purchase and you put enough money down. Ive heard many clients say, Ive got great credit, so quote me your best rate. Good credit cant directly influence the rate. But it can influence your mortgage loan officer to give you better pricing. If your lender can be assured your loan process is streamlined and smooth, and that they wont have excessive hours to devote to the process, they may be able to quote you a more competitive rate. Much about a quoted rate depends upon the man hours it will take to make your loan, the loan amount itself and how quickly you can close.
Lenders usually have a minimum percentage of income they are supposed to make on a loan. That percentage is flexible, but only to a certain extent. For instance, the loan amount size is a huge contributing factor. If youve got a really large loan amount, your lender doesnt need to have a feeding frenzy on your loan. The percentages lower because the payback is higher.
However, if youve got a really, difficult loan and a modest loan amount, you can expect higher rates or discount points. Or fees. Some lenders may raise your fees to make you think youre NOT paying as much. But you are. You have to in order for the lender to cover the cost of doing business.
Heres the secret. Closing a loan is actually a very involved process. Lenders cant do the loans for free or break even profit because its a business and their in it for profit. Plus, there are many people involved in the loan process that you arent even aware exist. Processors, closers, post closers, insurers a staff of thousands! Ok, so maybe not thousands, but your file is probably touched by 5+ different divisions (at minimum) within a mortgage company. Since it is a business, the lenders must make enough money on the loan to cover their costs and actually make money, too. The lender also pays outside parties for services too, like the appraisal, flood cert and automated underwriting system. Paying your originator is just the beginning of the mouths (and families) being fed by your business. It aint cheap to close and sell a mortgage.
When you examine all the fees and charges on a good faith estimate, your lender should be able to tell you exactly where that money is going and how it is to be spent. Your lender should have no qualms in telling you what costs are associated with your loan, or which funds cover third party expenses that your lender incurs by doing your loan. And some of that money will be profit. Much of it may be. But remember, youre not just paying the salary of only one person. However, you shouldnt pay too much for your loan. After all, the lender will make additional profit on the loan when it is sold on the secondary market.
A good lender will validate any fees and charges for you and should make you feel ok with the fees. If they dont seem reasonable or fair, always ask questions. If you dont like the answer, say so. And if you still dont like the answer, than look for a new lender. Buying a home is such an important purchase and you should feel good about it.
Article Source: www.iSnare.com
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[Source: Loan Mortgages]
