A FEW THINGS YOU CAN DO TO HELP YOURSELF

As most of you know mortgage rates have dropped dramatically and although they have climbed back up in the last two weeks, now is still an excellent time to refinance or secure great rates on a purchase.

With an increasing number of foreclosures hitting the market, opportunities are abound for homebuyers — as well as investors — to gobble up the homes in this buyer’s market.

Any experienced buyer has a “mortgage guy.” But let me give you a few words of advice.

The next time you ask a mortgage professional or your banker to send you a Good Faith Estimate (GFE) and the paperwork to get started on a refinance or purchase, there are some things you can do to help yourself.

Understand that the fees you are being charged can be negotiated. The part of the GFE that your mortgage consultant can control is the “800 section.” It can be found on the top left hand portion of this disclosure.

The attorney fees, escrow impounds and interim interest is NOT in the control of the mortgage professional.

With all that said, let’s concentrate on what you can negotiate.

Most mortgage operations are going to charge 1 percent ORIGINATION. This is the industry minimum.

Don’t expect your mortgage consultant to be willing to work for much less because this is generally accepted; particularly on loans under $300,000. As loans approach the conventional limit of $417,000, there may be some negotiating — but not much.

You should pay careful attention to note fees such as processing, underwriting, funding and document preparation. These fees are not completely illegitimate, but they can up to $900-$1200, which is a large amount of money — particularly if you are doing multiple transactions or if you are a repeat customer.

Most lenders, brokers and bankers will work with you to some extent, but it never hurts to just ask if they would cut these fees down or cut them in half. They may tell you “no,” but if you are willing to go elsewhere, they are not going to lose the loan over a few fees. Don’t be afraid to tell them you have talked with other professionals regarding terms, rates and fees.

One other thing to look for on your GFE is something called “yield spread premium” or “service release premium.” This is profit that the servicing lender will share with whomever you are securing the mortgage with. It occurs when your rate is indexed slightly higher than the market.

Now, there is nothing wrong with your mortgage pro making a living… we all have to. Just ask them from the outset — or when you are locking down your rate — how much they are making in yield or how much are you paying above the “par rate.”

This will keep them honest and they will know you are an informed borrower. They cannot hide this from you, but if you’re not looking for it you won’t see it.

You can find this information in the 800 section, as well, but it will be obscure. Look in the column to the left of the disclosed fees and you will find the “yield spread premium” (YSP) money. There should also be a form you will sign separate from your GFE that discloses this dollar amount or a range of what you may be charged by your lender.

YSP is typically charged when your mortgage professional is paid straight commission. The cost of the loan goes up and accordingly their commission income will increase.

Here’s the important part: A good rule of thumb is that if you are being charged 1 percent origination and more than .5 percent in YSP, you are paying too much… period.

Summarizing all of this: You should negotiate your fees within reason, know that 1 percent is the industry standard for origination, and know not to pay more than .5 percent in YSP. If you do all of that, you are probably going to get a pretty fair deal.

That’s all for now. Happy home buying.