If there’s one thing missing from shopping for a mortgage loan, it’s transparency. You would think getting a mortgage would be close to shopping for a gallon of gas, but it’s more like shopping for a car. Blech. By this I mean you and the salesperson (broker) are at odds – you want the lowest price, and they want the highest price (and therefore fattest commission). But just like shopping for a car, information is the best weapon. What is the invoice price? What factory discounts or incentives are out there? What are other dealers asking?
The good news is that there are a few brokers and lenders out there who are working with more transparency. Most of these are listed on the Mortgage Professor’s website, which is a good source of information overall.
Upfront Mortgage Brokers
Basically, the appropriate analogy here is that your car salesman has agreed to a fixed commission (say, $500) no matter what car they end up selling you. You know both their fee, and they will share what wholesale rates are available. Therefore, the only incentive left is to get you a loan type that fits so you can recommend them to your friends. You can find a list of Upfront Mortgage Brokers (UMBs) here.
One problem here is that there may be a lack of local UMBs in your area. Second, I have found that some brokers are more “upfront” than others. I feel that they should simply list their fees openly and directly (i.e. 1.5% of loans below $500,000), instead of having to submit an application first and jump through hoops.
Upfront Mortgage Lenders
Many rate comparison sites include a bunch of teaser rates that nobody can actually get. Either their credit is mysteriously not good enough, or that rate “just expired – sorry!”. What we want are real-time rate quotes, and guaranteed lender fees! The car analogy here is that you want the price quoted to be “set in stone”. No waffling at the very end and tacking on fees like “rust-proofing” or “documentation fees”.
This is exactly what Upfront Mortgage Lenders (UMLs) are meant to provide. All UMLs must:
- Provide quick access to the loan types it prices online.
- Disclose all lender fees, including points, origination fees, and any fixed-dollar fees, and guarantee them to closing.
- Disclose all third party fees with the best estimates possible, indicating which if any are guaranteed by the UML.
- Provides a clear explanation of its rate lock requirements, and disclose them prominently.
- Disclose all the information about its ARMs needed by shoppers to “make intelligent decisions”.
For example, lender Amerisave aggregates the available offers by other lending institutions, but it also has agreed to disclose its wholesale prices and markups to customers. For example, a recent quote on a $480,000 loan (home value $600,000) gave me a Guaranteed Lender fee of $5,780.00 (1.204%). This value includes all these various fees:
- Application Fee
- Funding Fee
- Administrative Fee
- Transfer Fee
- Origination Fee
- Processing Fee
- Loan Set-up Fee
- Wiring Fee
- Discount Fee
- Flood Certification Fee
- Tax Service Fee
- Underwriting Fee
This assures you that new fees won’t be added or others increased at the last moment, when you’re already stuck. However, it does not include all closing costs paid to third parties like the appraisal, credit report, and title insurance. Here is the current list of certified Upfront Mortgage Lenders, sorted with my favorite at the top:
- AimLoan
- E-Loan
- Amerisave
- National Mortgage Alliance
- BetterChoiceLoans
One potential problem with these is that if the loan you want isn’t very common (like a 30-year fixed, 5/1 ARM), then it may not be available for an instant online quote. Each lender can pick which loans it wishes to openly provide guaranteed quotes for. But overall, these sites are great for seeing what is a competitive price daily.
My Experience
When I started looking for a loan, essentially I didn’t really care what the salesperson made, I just cared about the final price of my car. That kind of made sense in my mind, so I got quotes from everybody under the sun. Of course, there are several bait and switch tactics that unethical brokers can utilize, so trust and my impressions of each broker did matter. I felt (possibly incorrectly!) that I was educated and knew what to look out for. If they weren’t willing to give me an instant quote based on my criteria then I said thank you and went to the next person on my list.
In the end, I did not actually go through an UMB or UML, but I did use the websites as comparison shopping tools. It turned out that the best price package that I found was also offered also by someone that was a personal referral at a small local bank. (More on that later.) However, I am very happy that these options exist. If anyone has used a UMB or UML, I invite you to share your experiences in the comments!
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With the drop in rates I was looking at refinancing my loan into a 15 year fixed. The bank where my mortgage is currently wanted to charge me $3k to start a new loan. I laughed in the ladies face and told her I would not be paying closing costs above $500 because they just gave me this loan a year ago. I didn’t need all the inspections and appraisals because it was done only a little while before. I have been looking around and have found a few places that do not charge the high upfront costs. This makes good sense since they make a ton of money on the mortgage itself. Why do they have to gouge me for an extra three to five thousand?
Read the recent article from WSJ about how new applicants for mortgage and refinancing are the ones who get screwed from the latest Fed rate cuts since it does little to affect the mortgage rate except for the ARM refinancing rate. So I tried to refinance my 30 year fixed at 5.875% to no avail so far, gee thanks Fed for screwing those who are actually responsible enough not to bail out on their loans.
I had no idea these existed. I will definitely be using one of these lenders for my upcoming refinance. Thanks!
did you try your local credit union? i have not shopped there for loans yet, but have noticed they consistently offer the better CD rates…
Saving – Refinances should cost less, but I’m sure the best bet is till to shop around. There will still need to be some profit mixed in there for the broker…
Marsello – It might be hard to refi your 5.875% to something better given the closing costs involved. 30-year is not directly tied to the Fed overnight rate, but keep your eyes open as it’s been bopping around all over the place.
Kyle – Glad it helped, hope it works out.
K – I did, and they are definitely another good place to start.
Thank you Jonathan for starting this post.
I am in NJ.And the only place I found straight up was my local savings and loan.
ING direct came second.
I am quite scarred of these mortgage brokers,since they dont set a FIRM price.And OVERALL I am averse to believing anyone who works on a commission.I was once upon a time a temp worker and I SAW upfront how agents works in the TEMP CONTRACTING BUSINESS.Do you agree?
Kudos here as well. Great article with nice tips. A quick check of rates in my area from those lenders had an odd range of costs for title fees — from $900 to $2000. Given the lack of guarantee on a Good Faith Estimate, what’s to stop the place that estimates a $900 title fee from actually charging $2000? Nothing.
It looks like the only one on that list that guarantees EVERY fee, including third party fees, is betterchoiceloans.com, but they don’t seem to have the best rates (nationalmortgagealliance had better).
Jonathan, how close were your credit union’s GFE to the final HUD1 fees?
Title fees should be negotiable as long as you are stubborn enough to exercise your right to choose your title insurance provider. It can be a battle though 🙂
Usually you can’t choose your appraiser, but here the lender should have a very accurate idea of what it will cost since they usually have favorite ones.
By guaranteeing every fee, betterchoice probably has to charge more elsewhere to cover themselves. Like paying for insurance? Just my guess.
I’ll have to check on my fees, but they were very close.
—
Another thing I noticed as weird is that the sites don’t seem to have updated the limits for conforming loans.
So if I search for $480,000 loan in CA on NationalMortgageAlliance, then I only get 30-year Jumbo quotes.
On Amerisave, at least I get “combo loan” quotes which are conforming loan + piggyback loans, which often result in a lower blended rate.
Still, I should theoretically be able to get a $480,000 conforming loan now, no?
Jonathan,
How is your rate compared with that from Bankrate? Lower by a quarter point or even lower?
I also plan to go with local bank, which periodically runs promotions. My broker was also surprised by the rate.
Jonathan, From what I understand from our mortgage broker, the new conforming amounts go into effect April 1.
I found a Credit Union to be a winner in many ways–costs, service, interest rates,etc.
Jonathan and Jessica,
I have been told by Mortgage consultants that 4/1 they go into effect but it will also take additional time for the lenders to roll them into actual packages.. so they might not be available til May. 🙁
I am hoping to refi my primary house in NY to a conforming loan.
Carlo.
Saving Freak you need to understand the breakdown of those “closing costs” to understand the amount.
1) Most of that $3000 is going to be prepaid interest and interest accumulated by your current mortgage the month it’s paid off. You have to pay this anyway! This really doesn’t count in the cost because you’re skipping a mortgage payment. The interest for that month has to be settled at the closing. You don’t get to borrow money for 1 month for free!
2) If you have at least 20% equity, some lenders will waive appraisal. Other fees can be waived like application, origination, credit report and settlement fee. If these fees aren’t waived or very low, keep shopping.
3) Taxes have to be paid all RE transactions just like you pay sales tax at on stuff you buy at the mall. Death and taxes.
4) No way around lender’s title insurance, what I like to call the biggest scam in the history of the world. Sometimes you can get a reduced rate with a “reissue” of a policy recently issued. You have to ask, however. It also usually has to be the same lender that originated your current mortgage.
5) Points? You want the lower rate, you have to pay. At least points can be tax deductible.
6) Escrow? You have to pay this anyway too! You need insurance and you can’t avoid annual property taxes. You will get a refund of the previous escrow balance. The only real cost of this is the float.
When you add it all up and subtract the stuff you’re already going to pay like interest, insurance, and property taxes, the actual refinance “cost” really shouldn’t be more than $1,000 to $1500 with no points, and that includes the title insurance. If your rate drops a half a point, you should be able to make that up very quickly (you save ~$32/month per $100k, 30 year).
NFCU – called them yesterday for a refi and got this simple breakdown of fees on a 0 point, 0 loan origination mortgage at 5.75%: $2300. That’s total for all my loan fees/closing costs, etc.
Can’t beat that with a stick.
I just finished a refi on my property. I went through a no cost broker in the Bay Area. I got a 30 year loan at 5.62% with no points. This was done with no out of pocket costs to me except a month of interest that I would have had to pay anyway. The broker paid all the fees and closing costs out of his commision. I have done this three times to get better rates so I know that this is for real.
I came across a site earlier today – http://www.dealerdrop.com – that I thought was pretty cool. Now I see your post and thought that something similar could be ported to mortgage market too but its probably a lot of headache though it would be useful!
I attempted to use Amerisave two years ago to refinance a rental property and it was an absolute nightmare! They had scheduled and then did not show up for two settlements that were to take place at our home and then the rate expired and they tried to tell me that we would have to pay to extend the lock. Ridiculous. We ended up not refinancing the property.
Sorry to change topics in the comment section, but I wonder if Jonathan (or anyone else) would mind sharing his/her thoughts about the benefits of buying I bonds at this point in time. I plan to purchase a home in 3-4 years and am accumulating my own cash hoard. If I and others in my position want to preserve the value of our capital and increase it if possible, is there a better alternative?
When I purchased my house, I ended up going with a mortgage broker that I felt I could trust. (Well, as much as you can trust these guys anyways!) A few months after we closed, my mortgage broker called ME to let me know that rates had dropped a quarter point and that I should refinance with the broker covering all of the closing costs.
I feel in my case I found a broker who is trying to maintain a win-win situation with me in that I get a lower rate and she gets to earn a piece of the commission for herself, especially in this tough market. Maybe I am not getting the absolute best deal out there, but it’s a decent deal for me doing next to nothing! Of course, this is just my personal experience.
I used my bank’s mortgage loan originator because of a personal referral. She was so wonderful. The reason we went with her was because we knew she would do the best job she could for us. We may have paid a little more, but for us the peace of mind was priceless. 🙂
Nor_Cal, would you be able to refer me to your Bay Area Broker?
seems like there are some real good programs out there right now. Problem I am having is home values. A condo of my same size just sold for $300k in a bank owned deal. Bought this palce for $385k. If I want to lock in a fixed rate I have to put almost $100k down just to get approved. Hope home prices settle soon.
I have refinanced a several times over the pasfew years due to financial problems caused by merdical issues. I prefer working with local companys just because I like to see who I am dealing with. I didnt know anything about up front lenders at the time but I did have a good experience with my local lender. Their website is http://www.themortgagebankar.com Im curious if why there are so few up front lenders out there. Its a great idea and I cant understand why more people dont offer this service.
Everyone who reads knows your very smart and financially responsible. If you just asked one of your readers to loan you the money at 1% I’m sure somebody would have.
Ted Valentine (or anyone) – Where do you find someone to finance for $1,000 to $1,500? I would grab it immediately! The lowest Upfront Lender is $2273 for what I want. I would grab the $2273 but I need to read more on this subject. I have been burned once as I trusted my present Lender and gave them a $750 upfront fee which I now find out is not reimburseable. My present lender wants $5900 for the same % loan. I plan to cancel with them and eat the $750. Hopefully, I can do better even after this bite.
Interested in securing a regular mortgage on an investment property purchased with a hard money loan. This prooperty is located in Kansas City, MO
I went to aimloan.com. They were a bunch of BS. They advertise one thing and offer another. They are in revoke status with the better business bureau (bbb.com if you want to look). I noticed aimloan.com states they are an upfront lender. I called the mortgage professor about the ad for a 4.625% interest rate with an APR of 4.981% and only $1995 of closing costs with no points in the SF Chronicle. He said, “It was not to their advantage to advertise a higher than normal APR when it was actually lower than stated in the newspaper.” It really shows you how little he knows and how dishonest aimloan.com is. The APR is to be spot on – not more and not less than the actual APR. It’s now illegal to advertize anything but the correct APR. The newspaper ad would have had more than 2.5% in points but the ad did not state this. He just does not know what he is talking about.
Thanks Jonathan for sharing this nice article, because it gives me an idea and information regarding shopping for a mortgage. Til next time!
I used AmeriSave to refi back around 2011, and it appears they got slapped with a lawsuit by the CFPB. Just got a check for $23. Maybe now that they got caught they’re more honest, but I wouldn’t bet on it.
http://www.consumerfinance.gov/newsroom/cfpb-orders-amerisave-to-pay-19-3-million-for-bait-and-switch-mortgage-scheme/