Sep
23
House #2 = Closed
September 23, 2007 |
We closed on House #2 on Friday. I’d like to add “…and things went off without a hitch,” but that’d be a half-truth.
No hitches in the normal sense, as the funding came through fine, we signed everything, got the key, all that happy stuff. The hitch was that we got hit with 2.5% origination fee on the mortgage, which basically translated into me setting a little over $2,000 on fire for no good reason.
Before I launch into ranting and spleening, I’m ultimately to blame here, as I could have avoided this if I were more diligent (and had heeded a warning sign or two about the behavior of our mortgage banker in the past). The short version is that we ended up going with a slightly different loan product midstream, and I took Mortgage Guy’s word when he assured me it was exactly the same as the first loan that I’d gotten a good faith estimate for (which had a loan origination fee of less than 1%).
His only explanation when confronted with the fact that I most definitely wasn’t expecting to pay a 2.5% loan origination fee was that such a fee was standard for loans for investment properties, as the potential for the property to be flipped quickly makes it necessary to charge a higher loan origination fee to protect a profit for the mortgage lender. The only problem with that is the first loan we were going with was for the same investment property, yet it had a much more reasonable origination fee. An additional problem with that explanation is many lenders chare very low origination fees (or none), as their real profit apparently comes from marking up the loan when they re-sell it.
Lesson learned, as far as taking his word on it and not insisting on seeing all of the fine point before it was too late. I didn’t make too much of a stink at closing, as Mortgage Guy was there, as it was past the stage wheremaking a stink could cause anything constructive to happen, but I’ll be damned if he gets a penny of my business moving forward. If I had no other options when it came to getting a loan, that’d be one thing, but with our credit scores and general income/savings, it’s pretty ridiculous to get bent over like that.
In happier news, I did get to knock around in House #2 this weekend, and everything so far has been good news. I knew the hardwood floors under the carpet were in good shape from peeling back carept where I could, but I was pretty amazed when I got in there after closing and was able to really rip back the carpet. I’m not even sure they need refinishing, as they’re mainly just dirty, and it honestly looks as if the hardwood floors were installed then immediately covered with carpet, 50+ years ago. They didn’t even use carpet tacks to install the carpet, as it was just sitting loose on top of the floor and only held down at the perimeter by shoe moulding and tape. Worst case scenario is that they just need screening with a floor buffer and sanding disc, which potentially saves me a whole ton of labor and expense.
I’m probably going to need to replace all of the windows, though, as they’re in rougher shape than I’d thought. The finished product is going to be on the mid/high end of the range of homes here, and I think new windows is pretty critical, aside from just the aesthetics.
Still not sure about a few details, especially where the bathroom addition should go. I’m trying not to get too bogged down in those details at the moment, as a lot of the plans will depend on talking to contractors over the next few weeks, as far as firming up plans, seeing what’s possible, yada yada yada.
Comments
3 Comments so far
Congrats on the closing and great news on those floors. Mine are horrible. Hope you have time to post some pics. :)
That is a bummer to get suprised with a 2.5% origination when signing docs! I’m a mortgage broker and make it a practice never to suprise a client at docs with new info. I wouldn’t expect to have that clients future business if I did!
I do understand the point of charging more origination on an investment loan when the property is going to be sold in less than 4 months.
Typically most mortgage brokers make some money on the “back end” of the loan called a rebate. For most loan products offered by wholesale lenders the lower the rebate, the lower the rate.
Now, if a mortgage broker originates a loan and the borrower sells or refinances the property within approx. 120 days of funding, the lender can and will demand the rebate back from the mortgage broker. Ouch!
So, in your case, I would price your loan at par (no rebate, lower rate) and charge a “higher than normal” origination. Hope that makes sense.
I’m not siding with this broker just trying to provide you some more information. It seems like you’re really savvy and I love this site so far.
Dustin,
Thanks for the comment, and the insight into the world o’ brokers.
My main complaint (and why I won’t do business with him again) is that we discussed the very issues you raise on the first loan I did with him, for House #1. We specifically discussed the time frame I’d be holding the property, and went with a loan option with a very low origination fee and an oral agreement that I wouldn’t flip it too soon, causing him to lose the rebate.
That worked out fine for all parties involved, and was what I asked for when approaching him about the loan for House #2. It’s how the first version of the loan for House #2 was set up, with a loan origination fee of less than 1% and 90% financing. When he discovered that they were still offering some 95% financing for investment properties and he could squeeze me in, we went with that. That was the loan I got, which actually had a 2.5% origination fee that I was only aware of when we got to the closing table.
As I said, I should have insisted on seeing the details of the loan before it got to that stage, so I’m definitely at fault here. But he very definitely knew that the loan origination fee was a potential issue, considering the previous loan we did. I get that he’s just protecting his own interests, which is very understandable, but not communicating all of the details was fairly sleazy, especially since he knew my situation and expectations.