As a real estate investor, it’s important to know how to negotiate the costs of a loan. The loan process can be full of turbulence, so you need to be prepared before you go in and start the process. Always come with knowledge in tool belt. Then as you practice real estate investing, you will turn that knowledge into understanding and eventually wisdom.
The Closing Costs should never be more than 3% of the loan. You’ll want to watch your Good Faith Estimate and your HUD1 carefully.
At closing, take a look at the HUD1. HUD1 lists of all the costs to the buyer and to the seller. That’s where you want to look for junk fees you’re being charged. These could be administration fees, doc prep fees, etc.
A mortgage broker should make about 2% of the loan from you if you are doing one loan at a time. In my opinion, that’s the maximum amount that should happen, but some make a lot more than that.
It’s important for you to understand that most loans have an origination fee that goes directly to the broker. The broker then does a commission split with their loan officer. But that origination fee should be no more than 1% unless the broker is not making anything on the back side of the loan (called a yield spread).
For example, if they’re giving you a really good interest rate and they’re not making anything on the back side, the yield spread, then I ‘m willing to pay 2%. But only if I’m confident there aren’t any junk fees.
I usually tell the broker that when they give me my interest rate quote, they can make 1 on the front and 1 on the back. For less money out of pocket, at closing, they can make their money just on the back end and you can save 1%—out of pocket. Your rate will be a little higher, but that’s what I typically do.
Questions about the loan process? Let me know in the comment section below!
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