Mortgage lenders are required to give loan applicants a detailed and truthful good faith estimate at the time of application, or within three days thereafter.
I would actually suggest that if a mortgage lender fails to provide you with an honest good faith estimate at the time of application, that mortgage company or loan officer is probably one that you should avoid. But that’s for another blog post.
Rather, I want to focus on the money-saving opportunities that can be uncovered in the good faith estimate.
Let’s start with the Yield Spread Premium or YSP. This is the commission amount that the mortgage broker or loan officer will be receiving from the wholesale lender who will actually be providing the funds for the loan. The yield spread premium is typically about 1% to 1.5% of the loan amount, and should be expressed as both a percentage and actual dollar amount.
If you have a big loan amount, this commission will likewise be bigger for the loan officer. If that is the case, make sure to point this out to your mortgage lender and use the fact that you know this as leverage to lower other costs — especially their junk fees.
Don’t get me wrong. I firmly believe that mortgage professionals deserved to be paid for their services. But if they’re already being paid handsomely by the wholesale lender who’s buying the loan immediately upon closing, then they should probably give you a break on the silly junk fees too many mortgage brokers and loan officers add to your closing costs.
Another area of possible money savings is the credit report. Make sure to ask for an actual receipt from the credit reporting company. The reason is that some mortgage companies will estimate $50 for the credit report but will actually pay much less… then pocket the difference. By asking for a receipt before the closing or during the application, you can give them warning that you don’t want to overpay on your credit report charges.
Finally, don’t forget always ask for discounts on your closing costs. Mortgage companies are hungry for your business, especially if you’re a qualified borrower. Use that to your advantage to negotiate the best possible deal.
