The mortgage lender’s job is to sell mortgages. At least that is what most lenders do to keep their jobs. However, in many cases they use unscrupulous tactics to close enough loans to meet their monthly quotas at the expense of the consumer.
Here are seven things lenders don’t want you to know about your home mortgage, but you should know to protect yourself as a consumer:
1- If you apply for one of those loans with “no closing costs” you might end up paying less up front but your monthly mortgage payment will be up to $300 higher than on a loan with up front fees. Say you qualify for a $200,000 loan at a 3.5% interest rate, your monthly mortgage payment would be about $700.
2- Some companies will offer you a higher interest rate with no closing cost and the option may seem appealing but it could really cost you in the end. In most cases the ‘no closing cost’ deal is not worth it because over time you will pay up to three times what you would normally pay up
3- Freddie Mac guidelines state that the average down payment on a new mortgage is 10%. However, with Private Mortgage Insurance (PMI) on loans under 20% down you’ll pay for getting the lower down payment deal every month. The bank doesn’t tell you that you can avoid paying PMI if you get two mortgages instead of one. The perfect scenario is a 10% down payment and taking out an 80% first mortgage. Another 10% would become a second mortgage, which is the ideal situation to save the extra $150 each month that you would have to pay for PMI.
4- Lenders charge a fee to close each mortgage and that fee is negotiable just like it is with a car dealer. Mortgage brokers get a loan approved for you at a wholesale price, and it increases their commission by the difference that they charge you. If you agree to provide contact names of prospective customers, mortgage brokers will usually waive or reduce fees.
5- Don’t pay the mortgage application fee. The majority of the time if you ask that it be waived, it will be deducted from closing costs. If your lender refuses, then you might have to go to a different lender.
6- Many lenders will scare you into thinking that if your credit report is pulled by multiple sources during the course of shopping for a mortgage it will affect your credit score negatively. That is not true. Your credit report can be pulled up to five times by lenders before your credit score is affected.
7- Yield Spread is the inside secret that many lenders keep sacred. This is the amount that the mortgage originator makes on the loan. Let’s say that the broker gets a 3.25% wholesale interest rate approved for you. If the broker wants to make a 2% commission, the broker will request that the bank give them the rate that will allow them to make that 2%. So the bank will lower the wholesale interest rate, let’s say to 3% and the broker will add the 2% and offer you a rate of 5%.
Different banks and mortgage companies will underwrite or sell mortgages for different profits. It’s up to you to get the best deal possible for yourself shopping for a home loan. Many lenders will choose a home loan program that will make them the most money, but are not necessarily cost effective for you. Ask questions and don’t be afraid to walk away from the deal if it doesn’t feel or sound right.