Loan fees, costs, and points – is an important topic for homeowners.
One of the biggest mistakes someone can make when shopping for a new mortgage loan is to just ask: “What’s the rate, and are there any points?”.
I think it’s almost a certain guarantee that if you ask that with no follow-up questions, you’ll end up paying more in loan fees, costs, and points.
Knowing what to ask a loan officer is key to keeping your fees, costs, and points low. Here is a simple guide to follow and some suggestions on how to lower your fees on your next refinance or purchase transaction.
The Right Question To Ask A Loan Officer
The main reason why it’s bad to just ask: “What’s the rate, and are there any points?” is that mortgage lenders in California (and across the country) can add a lot more fees to loans that have nothing to do with points.
Also, some loan officers will quote you zero point loan and not be clear on the upfront origination fees.
Second, there are some lenders that only quote discount points as “points” and do not include loan origination fees with discount points.
Searching for a mortgage loan and getting a great interest rate can be a hard process, but with a few simple steps, you can make the process much easier.
This Will Help Make Shopping Easier:
The easiest way to shop for a new mortgage is to ask the loan officer the following question:
“What is the rate, loan amount, payment, and TOTAL fees for everything?”
Asking this question instead of “Are there any points?” gives you a much better picture of what you are paying. Maybe even repeat the everything part and say don’t leave anything out.
If your loan officer does not give you straight answers to this very basic question, you might want to find a new loan officer no matter how low their quote is.
Mortgage loans are complicated. There are dozens of possible items that you may have to pay for and you’ll want to know what that is upfront when you get the quote; not at closing. As I said in the beginning, borrowers who ask what are the points pay more for their loan than they need to.
Borrowers who ask what are the total fees for everything will usually end up paying less.
Some Follow Up Questions To Ask:
Here are two follow-up questions to ask the loan officer after you’ve received the quote:
- “Are you rolling the total fees into the loan amount, or do I need to pay them separately?”
- ” When will you lock the rate and terms, and will you provide the lock in writing?”
And is it important to get a breakdown of the fees?
Absolutely it is, but that should come after you find out the total amount. Doing this also allows you to see if the total amount and the breakdown match up, and if they don’t, you’ll need to ask the loan officer why.
Watch Out For This Problem
Perhaps the worst quote you can get is when a loan officer says something like “Our rate is 4.00% and comes with a $3,000 lender credit!”
Borrowers who have moved forward on a quote like this have definitely ended up paying more fees than they needed to. This is the oldest trick in the book and many loan officers still provide quotes like this because it sounds great. The truth is that it’s anything but great.
The reason why this is such a bad quote is that you have no idea what the fees are because all you are focused on is the $3,000 credit you are getting.
If the total fees are $10,000 (which easily can happen with some lenders on their mortgage loan programs), then you’re paying $7,000 in fees. Now that doesn’t sound so great but a borrower probably won’t realize the loan is costing that much until closing. Never, ever accept a quote with just a rate and credit towards fees.
Work With Reputable Mortgage Lenders
If you want to lower your fees the number one thing you can do is work with a reputable lender. Reputable lenders don’t overcharge; they charge a fair price for their services.
Check the lender’s rating with the Better Business Bureau; if they have less than an A- rating you might want to ask more questions about the company and the quote.
Then when you have your quotes, simply talk with your loan officer. It’s that simple. If you are working with a reputable mortgage lender and an experienced loan officer you can trust, then you should be able to have an open discussion on what’s being charged.
Many fees are preset based on the transaction (ie the underwriting fees, title, and escrow fees), but if there is an “application fee” or something similar, then ask about getting it reduced (FYI – we don’t charge an application fee).
One More Tip:
If it’s a purchase, then ask them (the loan officers that are providing a quote) to separate the title and escrow fee estimate.
The reason is the seller of the home sets up the title/escrow services, so no matter who you use as a lender, your title and escrow fees will remain the same. Don’t get me wrong; you should still eventually inquire about them, but when you’re getting your quotes, just focus on the mortgage part since the title/escrow fees won’t change (this only applies to purchases).
If you would like a no-cost/no-obligation quote, just call us directly at 1-800-550-5538. Everyone wants the absolute to keep their mortgage fees low, and if you ask what the “total fees are” (as in everything including points, origination fees, 3rd party fees, lenders fees, etc.), then you don’t have to worry about if anything is being left out.