How much should your mortgage cost you? Part 1
Well.you don’t know. At least not the way the system is set up, that is you have to have trust in people who have a vested interest the in the transaction!
Most people will choose a lender because someone referred them or they used them before and felt comfortable. There is the weakness that every lender exploits, because you as a consumer don’t know what the true costs are. You only know what the lender tells you they are. Yes you can get quotes from three lenders and guess what? They are all going to be pretty close in costs and rate. Why? In any given market the lenders have dictated what the fees will be and if they are all about the same, whoever gets the deal gets the excess fee income.
Let me give you an example. Let’s look at the processing fee or some lenders call it an Admin fee which is going to be somewhere between $350 – $450 depending on your market. With the technology today a processor from start to finish, spends at most 5 full hours on any file. Let’s use $20/hr. for a processor which puts their cost at $100.00, I don’t think there is $250 – $350 in office supplies, phone calls and credit report. So if none of the lenders you have polled are less than $350 for processing you will over pay for this fee no matter who you went with!
And that my friends is just the beginning. For most of us a mortgage is the single largest financial transaction we will be involved with and yet as you can see the system has been set up to work on faith rather than fact. I am all for faith when it applies to religion, not mortgages! HUD and FNMA both have “information booklets” and websites that tell you the “What is” about the process and the paperwork which is good information but, you also desperately need to know the “How much is” part of the process. No one currently involved in the process will tell you.
My next article will deal with rates and how they relate to what the lender gets paid and of course how lenders get over paid!