A very unique aspect of what we do here is we actually counsel and advise our clients as to what is best for them (crazy, we know). As a result, we will often get people referred to us who are working with another lender, are frustrated or unsure of them and want us to walk them through the process. We love doing that, although it can be very frustrating also because we get used at times (side note: we will never understand people who contact us because they do not get it or trust another, yet they end up staying with them after our efforts with them. Huh?).
Here is a classic trick of our trade being pulled by a Countrywide guy with a client who sent this to us for our review. The client is approved to purchase a home on a fixed 30 year FHA loan with a rate of 5.75% paying 1% in points. For those of you who do not know, 1 point or origination fee (they are one in the same, tomatoe, tomato) is equal to 1% of the loan amount. Sounds straight forward enough, yes? That’s what you think.
If you were looking at the paperwork you would see that the APR is 6.715%. The APR, in my lamine terms, is simply the amount the lender is going to make the first year of your mortgage due to the fees they are collecting from you at closing. It is never your rate, but what the lender will make immediately. So, think about it, if the APR is basically 1% higher than the interest rate then what do you think is going on? That’s right, you are paying fees up the wazoo. Here is what they are doing, we can virtually to the exact percent calculate that they are also charging this borrower a 1% origination fee. You will probably say, “But you just said they are charging them 1 point, and points and oringination fees are the same.” And you would be right. However, this is the trick lenders play all the time; we see it constantly.
First of all, if you call a lender and ask their rate (which is a horrible way to shop on so many levels; that is a different post to get into later) they are going to tell you _____%. Unless you know to even ask how many points you are paying they will not tell you anything, even though you may be paying points (and usually are with traditional lenders). But even if you do ask, they will tell you _____ points. The problem, and the trick Countrywide is pulling here, is they are also charging an origination fee to this borrower. But they do not tell them that because the borrower did not ask about origination fees, but points. So even though there is no difference at all except their name, they will conveniently leave that detail out since you did not ask about “fees” but “points”, and you will inconveniently find out later as Countrywide hopes (and fully expects) you will stick with them because you have already done work with them.
Folks, you are NEVER obligated to stick with a lender, nor are you to far in the process to pull out of it. Do not take this garbage from lenders. Until folks start leaving these lenders in their tracks because they do things like this, then they will continue to do things like this.
If you or anybody you know is in process with a lender, or just needs help/advice then have them give us a call at 505-830-9685 so we can walk them through this hand in hand, step by step.