What is the Real Cost of a Loan?

I get asked this question a lot by people that are shopping for the best deal.  And there is not one simple answer so I wanted to take a second to give you some basics and a starting point to think about.  The cost of a loan include the hard costs such as lender fees, third party fees and the interest rate (which itself isn't simple), as well as the intrinsic value or the value of the service you receive.

Let's start off with the hard costs.  Every transaction is going to have what are called "third party" fees and these should be fairly consistent from lender to lender.  These are things like the appraisal, title, escrow, recording, etc.  Then there are going to be the lender's own fees.  These are typically the origination fee, underwriting, processing, things like that.  Since these fees are determined by the individual lenders, they can vary quite a bit.

The interest rate is usually what people want to know first, and for good reason.  Your monthly payments will be determined by this.  The rate should be fairly consistent although there is some flexibility and variability.  Typically your lender or mortgage broker will be given a range of rates each day.  Each rate has a cost associated with it.  From the lowest options that usually come with a cost to you (or discount points) to a higher rate where there are more options for including closing costs.  This is because, on the higher rate options, the lender is paid back and can use these funds toward your fees.  If you've ever heard of a "no fee-no points" loan, it's typically done by charging a higher rate and using the funds received from the bank to pay the costs.  Most of the time people want something in the middle (the par rate) where they aren't paying for it upfront and the lender isn't getting paid back.

If you're being quoted a rate that is quite a bit different than everyone else (and in this business that usually means .25% to .50% different), it's usually a "too good to be true" moment.  All of the lenders and mortgage brokers have basically the same sources of money.  It used to be hundreds of different investors but it's now down to just 10 to 20 that we get rates from.  And those 10-20 typically boil down to the 5-10 big banks that are still out there.  So if the rate you are being quoted is significantly different from other quotes you need to check the other figures to see where it is being made up.

Which brings us back to the closing costs.  If the rate is too good to be true it might mean that the cost to get that rate is buried somewhere else in the closing costs.  Watch them closely and compare each line item.  The other think that could happen is you're not getting the product you thought you were.  There have been many instances of people thinking they are getting a 30 year fixed product and end up at closing with some kind of ARM product instead.  And there are lenders out there that are hoping you don't notice the small print, at least until you're too far into the deal to change it.

Most often the biggest difference and most important one you will find from lender to lender is the intrinsic value (the value of the service).  There are a lot of things to look for when it comes to getting a mortgage, from the rate and costs to the lender qualifications, market guidelines, compliance, etc.  Now more than ever it takes a lot of effort to keep up with all of the changes. 

The bottom line is to be aware, ask questions and use someone you can trust.  You might find an incredibly low rate shopping the internet but will most likely end up with an 800 number and a customer service person that's probably not even in the country, let alone the northwest.  And if problems arise or numbers don't end up as you were thinking it can be extremely difficult to ask questions about options, get updates on your status, or probably even reach the same person twice (that goes for some of the bigger lenders out there as well).  If you've ever dealt with your cell phone provider to get answers you know what I'm talking about. 

I have been in this business for over 16 years and have developed the ability to streamline the process for my clients, predict where problems may arise and how to deal with them, and I'm always available to answer questions and guide you through the process.  I may not always have the lowest rate or fee quote but I am always competitive and truthful and make it a priority to find the best product for your situation.  I am upfront when it comes to the costs and process because it is not fun for anyone involved (me included) to be surprised or thrown a curve when you are dealing with a large and important transaction like your home.

With rates still extremely low and the tax credit advantages available there are many opportunities for you, your family, and your friends.  If you know of anyone that is interested in buying a home or that has other mortgage needs, please have them give me a call.

Uncle Sam's Christmas Present

Over the last year all we've heard about is stimulus for this, stimulus for that.  If you're anything like me you've probably been thinking that you got the short end of the stimulus stick.  Well, not so fast my friends! (my son is a huge college football fan so, if you watch College GameDay on Saturday morning, you'll get that reference).


The President just signed an extension of the first time homebuyer tax credit.  This was set to expire at the end of November but has been extended until June 30th.  The really good news is that a credit is now being offered to those that have owned a home also.  The first time buyer credit is still $8,000.  The move up credit is $6,500 and is being offered to homeowners who are buying a new primary residence beginning December 1st.


The language mandates that to get the credit the homeowner must have owned their home for five consecutive years of the previous 8.  There are income limits to watch out for too: $125,000 for individuals and $250,000 for couples.  And there is an anti-flipping rule.  Any homeowner who collects the credit and sells within three years must return the money (it's the same for the first time buyer credit).  The extension goes into effect on December 1st and covers consumers signing a contract by April 30th and closing by June 30th.

If you'd like more information, the government has set up a website with frequently asked questions.  Just go to:  The Federal Housing Tax Credit website.  And as always, I'm happy to answer any questions.