Another great post by a fellow ActiveRainer. It shows the value of a Home Buyer making a phone call or two to verify rates and fees when searching for a loan.
It's time to have a quick class on FHA loans, the fees for FHA mortgages, and just a basic understanding on how all of this works. This is truly frustration on my part from some loan officers blatantly lying to borrowers, just to justify their fees and such. It's total BS and it needs to be talked about.
Just today, I spoke to a borrower that is having a concern with their 2nd lender, after the first lender failed them miserably. This lender is charging them 6.00% with 1 1/2 points as an origination fee. His credit scores are above 670 and the purchase price is $272,000 with the minimum down. And they are being charged a $495 commitment fee. With this scenario, they should be getting at least a 5.50% interest rate. Here is what they are being told.....
So here is the story of one borrower after speaking to their current loan officer. They were told that they are getting 6.00% and not 5.75%, because of his credit score of 670. Well, I don't know one investor as of 6/13/09 that would charge you 1/4% percent, let alone, a 1/4 point, for credit scores above 670. He was told it was because he didn't have a credit score of 700.
Secondly, he was told that out of the 1 1/2 points of the FHA origination fee, that a 1/2 a point goes to FHA and the other 1 pt goes to the lender that they are selling this too. Even if the other lender was collecting something, FHA or HUD doesn't collect origination fees. Sadly, this is the 3rd time just this year that I have heard a loan officer tell a borrower that part of the origination fee goes to FHA. Rut Row... see Pinocchio's nose on the loan officer? His nose should be much longer, because this is one of the biggest lies that I have heard. The commitment fee being charged? Very average in most csses.
So, let's define FHA origination fee or just origination fee. It is explained to be a fee charged for the processing of the loan application. This is even the same definition in the HUD buying handbook. The fee is often expressed as a percentage of the loan amount, which does vary among lenders. The basics behind this, no matter who gives what definition? It is a point to pay for your rate. Either the lender is buying your rate down, or using it for extra profit. In my example above, it is being used for a larger profit.
So, what does HUD/FHA collect on all FHA loans? Just the Upfront Mortgage Insurance Premium (MIP) and the monthly mortgage insurance MMI. The lender gets all other lender related closing costs. I hate saying this, but if a loan officer tells you that part of the origination fee goes to FHA, don't walk, run very quickly and far away. This is not my opinion, but a real cold hard fact.
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For more information on FHA loans, please go to this link. The FHA Expert
For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!
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