All mortgage fees depend on many factors: what is your down payment? what does your credit look like? what is the size of the loan? Lenders typically judge a loan on three parameters. Your FICO score, your debt to income (DTI) and what your loan to value (LTV) is.
When I work with a lender there are always fees that are set and not subject to change such as underwriting and legal work. The title company, the survey fee, the appraisal fee etc., are also set fees. As I thought about it I began to see the merit of using a set fee for my services, also. Why could I not use a flat fee vs. a percentage for my business?
When I started in the business I was told to charge 1% and never to come off that number (smaller loans we were told to add to that 1%). Still today when I look in the business section of the Dallas Morning News
on Friday there is information from Bankrate.com showing the different lenders that participate in the program, their interest rates, their fees, their percentages, what amount down and the APR - what amount of money it is going to cost you to get that interest rate. So 1½ years ago I launched my flat fee lending program. I do the same amount of work whether the loan is for $70,000, $700,000. It's the exact same process, the steps are exactly the same every time. Every product needs to have a margin and the margin in this business is based on what the cost is to handle that transaction and see the loan successfully closed.The next thing about loans is something called a Yield Spread Premium (YSP). It has been around for a long time and is an amount of money on the back of a file that the lenders pay to the brokers for sending in the loan. Bankers make YSP, lenders make YSP, brokers make YSP, loan officers make YSP. I've never been comfortable taking a large amount of yield spread from the back but when I first came into the industry, I was taught that it was one and one: you made 1 point on the front and 1 point on the back and that was the only way to price your loan. There was not an alternative. I found that as the industry changed and the internet became more popular for doing loans, people began bypassing the traditional way of lending which was to walk into a broker's office and fill out a loan application. There is a great deal more shopping around so the '1 point on the front and 1 on the back' slowly eroded. It got way too competitive and many companies went out of business because they were not as profitable as they needed to be. When you hear a company advertising over and over, you know that they are adjusting their fees to afford that advertising. So when I look through the Dallas Morning News and I see all the brokers and look at their interest rates and points, the points are one way the broker is going to get paid. Typically, a broker will charge an origination fee and a processing fee. Some brokers will also add a credit report, a lock fee and an application fee. My company just has a flat fee origination of $1850 and a processing of $495.
My average loan size last year was $275,000. Technically, a 1% should net me $2700 every time I do a loan. Right there, every person who did a loan with me saved $850 by working with me. As I looked at the interest rates that the other lenders were showing and I know that, for the most part, brokers see the same rate sheets from about the same lenders. In other words, when I look at a rate sheet from Wells Fargo and one of my competitors looks at a rate sheet from Wells Fargo, each of us has about the same idea of what our cost structure and yield spread premium is going to be. I have worked my company up to what Wells Fargo calls 'Tier 1' status which means that I get better pricing, I get better turn times and I get better underwriting because of that. To be at Tier 1 status means we are doing something right!
The other day I looked at one of the highly advertised companies and found that I was showing an interest rate of 4.875% with my flat fee and they were showing an interest rate of 5.25% with 1%. Right there they were more than .375 higher than my interest rate and $850 higher based on a loan of $275,000.
My hope is you appreciate the flat fee and that this helps you understand why I chose to use it. When you are referring me to your friends and co-workers I hope this will make it easier to explain that we do things a bit differently here. We are very transparent, very aboveboard and our goal is always to give you the lowest possible rate with the lowest possible fees.
I have been fortunate to do loans for some wonderful people in Frisco and the State of Texas. I look forward to continuing to meet great people in the coming year and help them as I help them realize their housing dreams.
Your feedback would be greatly appreciated. I always enjoy hearing from you.
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