4 Tips To Lower The Cost Your Bad Credit Mortgage
4 Tips To Lower the Cost of Your Bad Credit Mortgage - Did you know that identifying a hidden fee called "Yield Spread Premium -(YSP)" can save you tens of thousands of dollars over the life of your mortgage loan?
This "junk" fee boosts your interest rate by as much as 1% - for no reason at all except to put money in the mortgage broker's pocket!
You must identify YSP and negotiate it OUT of your loan. Most borrowers are completely UNAWARE of this HIDDEN FEE - it's legal but not obvious....
There are a few other tips as well - Here's where to start...
1. Only Work With Mortgage Broker not a Broker Bank
There is a big difference between the two...
Why?
Because the RESPA rules are different for true 'brokers' and 'broker banks' regarding fee disclosure. You definitely want to work with a BROKER not a Broker bank.
BROKER-BANKS - these are little more than banks disguised as mortgage brokers. Broker banks DO NOT have to disclose all fees associated with your loan. This means that a loan officer you are working with may be getting a bonus from the lender for marking up your interest rate. See :YSP
How can you know if you are getting the rate you 'TRULY' qualify for? Well…you don't if you are working with a Broker-Bank. Stay away - work with a mortgage broker. Which leads to the next question....
2. How Can You Tell The Difference Between a Broker and a Broker Bank?
The way to determine if you are working with a Broker-bank or a true Mortgage Broker is to ask your broker "In what name the loan will close under".
If your loan closes under the name of the company you are working with, your working with a 'Broker-Bank'. If your loan closes in the name of the 'wholesale lender' then you are probably working with a true mortgage broker.
So if you're sitting at a Countrywide or Flagstar Office in strip mall talking to a loan officer the loan will be probably be closing under the same name - SO - chances are pretty high you're at a BROKER-BANK, and you should strongly RECONSIDER another lender.
Why is this distinction important?
Remember, you want to work with a true 'mortgage broker'. Broker-Banks don't have to disclose all the fees associated with your loan - potentially costing you tens of thousands of dollars over the life of the loan.
3. Know What Closing Cost Fees are Acceptable
It's no problem and totally acceptable that your loan officer be compensated for structuring and delivering you a loan - it's a lot of work. However, what's NOT ok is when the loan officer marks up or hides fees within the already confusing structure of the loan. So...
Pay no more than 1% origination fee. This is an acceptable payment for the work the LO performs. On a $200,000 loan he'll earn $2000.
4. Know How to Find and Eliminate Hidden 'Yield Spread Premium'
Yield Spread Premium (YSP) - Hidden Fee That Increases Yor Interest Rate
Do not pay 'Yield Spread Premium'. Make it clear that the interest rate offered by the wholesale lender funding the loan, is what you will accept - nothing higher.
Here's how it works... Based on your credit score, income and debt ratio you qualify with the wholesale lender for a 6.5% loan HOWEVER you are offered 6.75% by the LO.
What's going on?
The LO just made an extra $2000 by marking up your rate by .25%. The lender gives a bonus back to the LO of 1% of the loan amount for each .25% he can mark up your loan. Quite an incentive for the broker! Bad for you. Knowing this is essential in learning how to negotiate a lower mortgage interest rate.
More info:acceptable and unacceptable closing costs
Great, don't pay YSP, but how can you tell if it's 'baked' into your loan? You won't find it on the GFE (Good Faith Estimate) so how do you know if it's there?
YSP is simple to detect, just make it crystal clear that you will be shown the 'wholesale lock sheet' the day your LO locks the rate with the wholesale lender. The rate you are offered must be the same as the interest rate on the lock sheet - if not simply find a broker who will comply.
Read More - Yield Spread Premium
Follow These 4 Tips To Lower the Cost of Your Bad Credit Mortgage
Remember, you need to watch out for yourself financialy when dealing with something as important as a home purchase. The broker has no fiduciary responsibility to educate you regarding the fee structure on your loan.
The loan officers do this every day so they know all the tricks - you deal with mortgage and home loans once every 10-15 maybe 20 years, so err on the side of caution - there are no stupid questions!
Knowing how to negotiate with your bad credit lender is critical if you want to save big money on your mortgage. If you're a bad credit borrower, learn how easy it is to get rid of junk fees, avoid excessive closing costs and how to negotiate a lower mortgage interest rate, by using these 4 tips.