A few weeks ago, a home buyer shared some pricing scenarios a fellow mortgage originator was offering to them.
Scenario 1 looks like the mortgage originator wants the borrower to believe they’re only making a half point in loan fees and the borrower is paying an additional 0.625% to buy down the rate further. How the borrower should look at this is that if they select Scenario 1, they are paying 1.125% to have 4.50% for a rate. (This was provided to me in mid-March and does not reflect current pricing).
On most current Good Faith Estimates have the following lines designated for “points”
- Line 801 = Loan Origination
- Line 802 = Loan Discount
- Line 808 = Loan Origination if you’re a Mortgage Broker
In all my years (9 as of April Fools) of mortgage originating, I’ve never seen an estimate with 0.5% origination and 0.625% discount points. It just seems silly to me. This really illustrates why a consumer should just add up the points paid regardless of if they are entered as discount or origination–if you’ve paid either, you’re paying points. In fact, as I’m sure I’ve mentioned before (but it’s worth repeating) you should add up all closing costs disclosed in Section 800 of your Good Faith Estimate to see what you are paying for interest rate. Some lenders may have additional fees, such as processing, underwriting, funding…etc. Unfortunately, APR is not a fool proof way to compare interest rates.
While I’m dishing out advice, selecting a Mortgage Professional by interest rates–when we are currently receiving a new rate sheet ever 5 hours is crazy. Odds are, you’re not comparing apples to apples and rate quotes don’t mean anything unless you’re locking in at that moment.
In this current market, make sure:
- Your loan is locked for enough time to accomodate your closing. A 30 day quote on a 35 day closing isn’t going to cut it.
- Will your Mortgage Originator honor the closing costs shown in Section 800 of the Good Faith Estimate?
- Will your lender be able to provide loan documents to the escrow company earlier enough to accomodate the escrow company so they can provide you with an estimate HUD to review prior to signing? (You need to request this, if you want to have your estimated HUD-1 Settlement prior to your signing appointment–it’s generally not requested by borrowers).