Homebuyers: Save $1250 by asking for it
I have one of those great money-saving stories I love to read about on other blogs (like this one from CFO) and hear about from friends. And for anyone who will ever take out a mortgage, it may very well save you a good deal of money.
We’re selling our current house and buying another one in a different state. For us, for right now, that still means a mortgage. This will be a smaller mortgage, to be sure, and that’s part of the reason we’re moving - lower cost of living. At any rate, we’re in the process of doing all the mortgage-related paperwork.
If you’ve never taken out a mortgage or if it’s been a long time since you have, you may not be familiar with what’s called a Good Faith Estimate (GFE). The GFE basically itemizes all your expenses for the mortgage. Don’t ignore or skim over the GFE. It tells you what the mortgage company and others are charging you. On major purchases like this, where you’re talking hundreds of thousands of dollars, people tend to overlook a fee here they don’t understand and a charge there that wasn’t explained.
Don’t be that person. If you save $100 here, it’s the same amount of money as if you’d saved $100 at the grocery store. If you could save a $100 on a computer, you’d do it, right?
Anyway, I was reviewing our GFE like a good frugal blogger. I highlighted three items right away:
- Origination fee: $1250 (1% of the loan amount)
- Application fee: $300
- Underwriting fee: $325
I called the mortgage company contact person to get an explanation of these fees.
Me: “Could you explain why I’m being charged an application fee?”
Mortgage officer (MO): “It’s a standard fee.”
Me: “Ok, but why am I being charged for applying for a mortgage?”
MO: “It includes the appraisal and credit report fees.”
[Back story: We’re buying a new house at a price that requires us to use the builder’s lender. In other words, at a high level they’re really the same company.]
Me: “But why do you need an appraisal of a new house your company is selling me?”
MO: “It’s required to disburse the loan.”
Me: “Ok. Now what’s an ‘underwriting fee?’”
MO: “It’s the cost we pay to the underwriter to process the loan.”
Me: “So you’re passing your cost of doing business on to me.”
MO: “I guess you could look at it that way.”
Me: “There’s a $1,250 origination fee listed. I don’t want to pay that. Can you have it removed?”
MO: [several seconds of silence] “No one’s ever asked that before.”
Me: “Well I’m asking now.”
MO: “I’d have to talk to my manager and see what we can do.”
Normally that’s the kiss of death. ‘Talk to my manager’ is salesperson code for put you on hold or leave the room, pretend to consult someone, and return to say ‘No way.’ Even if the person you’re dealing with actually does talk to his or her manager, the answer is usually no for the simple fact that the manager doesn’t have to say it to your face.
In this case, things worked out quite differently. The next day when I spoke to the mortgage person, she told me that she had, in fact, gotten permission to remove the origination fee.
I got three takeaways from this experience:
- Always go over every document in a situation like this, especially a GFE.
- Ask questions about fees you don’t understand.
- Ask again to have them removed.
Simply asking the question saved us $1,250. And, to me, that’s real money.
February 18th, 2008 at 11:01 am
Awesome! That’s a very nice amount of money to save just by asking for it to be removed. Most people don’t even think about getting those crazy add-on fees removed. Great job!
February 18th, 2008 at 4:39 pm
I read your post about getting the origination fee removed. Nice move. I used to be a lender and the 1% origination fee is how we got paid. That fee is the income the brokerage company uses to keep the doors open so I was surprised when your broker agreed to remove it.
I would bet they made up for it by the yield spread premium but don’t know for sure. They too have to pay for the lights, telephone, taxes, etc. I am in no way condoning excess fees so please don’t read this post that way.
February 24th, 2008 at 4:21 am
This is a great post, the fees mortgage lenders charge can be absurd but not enough people complain because compared to the huge size of the mortgage it doesn’t look like much. But they amount to thousands of dollars that you pay NOW that you can save part of. I haven’t purchased a home yet but always read up on the process so I can save money wherever possible when I do buy. I will make sure to negotiate on every single fee charged and shop around. One of the most useful relationships you can have is a relationship with a decent lawyer. If you have one in your family or friends that you can retain to help you on things that is great, but you can also find good lawyers for reasonable rates on your own. Most lawyers aren’t the type that make several hundred thousand or millions per year. I come from a middle-class family and my dad had a lawyer he once needed on something over a decade ago and since then we’ve used him for tons of things. I’ve noticed that just having your lawyer call on your behalf for certain things can be a huge help.
True story, I was once charged for a Dell computer that I ordered but never received. Dell had even sent me automated emails saying the computer’s delivery was delayed over and over again, but for some reason they charged me for it and told me I received it. I argued with them for hours and even sent them all the emails I got from them, it didn’t change anything. My father suggested we call this lawyer and ask him to call Dell, we did so, he told them to contact him regarding this from now on, but instead a manager at Dell took the charge off right then and there. The lawyer didn’t even charge us since it was just a short phone call. But if he did charge it would’ve only been around $100 (he’s not an expensive lawyer), so $100 to save me from a $2500 erroneous charge wouldn’t have been a bad deal.
February 25th, 2008 at 7:49 am
Festivus, your point about people ignoring fees because they’re such a small percentage of the transaction price is exactly right. It’s a great example of irrational economics.
I’ll keep in mind the lawyer information. The idea of having ‘my lawyer’ do something for me is pretty foreign to me. My question is how to find a good, reasonably-priced one.
February 26th, 2008 at 10:23 am
It’s great you got the origination fee (aka points) removed. Did you ask for a revised GFE? Make sure they didn’t raise your interest rate because of that. Is the interest rate competitive to begin with?
February 26th, 2008 at 1:38 pm
@ Finance Buff - Actually, just to be clear, the origination fee is not the same thing as points. From my understanding, points allow you to buy down the interest rate. An origination fee does no such thing - it’s just a fee. To your question, though, no - the interest rate is competitive. I asked for the fee to be removed at the same time I asked for a particular rate.