Can you review these mortgage docs?

Question

An opportunity came up recently to buy my first property. I contacted a mortgage broker I was referred to by a coworker and after sending in some documents he sent back an itemization sheet with the loan costs and other figures. This was a month into reading about real estate and 4 months earlier than I wanted to actually make any decisions. So I haven't had a chance to actually research everything there is about mortgages and costs associated with one.

I've decided to hold off and spend about 3 or 4 months learning more about the process. Until than, I can review these documents and decide in the future if I want to end up going with this broker or look into other options.

The loan is an FHA loan for $300,000.

Loan itemization documents

Dion DePaoli · Answer

Welcome to BP Percy.

I have looked at the document (not plural) that was sent to you.  The single document you have been sent is what the title says it is, well supposed to be.  The document is a pre-application document used to illustrate estimated loan costs.  You received this document prior to actually formally applying for a loan (or at-least that is the way it should go) by signing a Uniform Residential Loan Application (Form 1003), Good Faith Estimate (GFE) and other disclosures.  
	
	If you received a formal application, form 1003, with this document then this is the wrong document to disclose potential fees.  That would be the Good Faith Estimate.  The two forms are similiar looking but not the same.  
	
	As far as the numbers go, this is a pretty sloppy and sort of high fee arrangement.  Comments per line item:
	
	Section 800 - Underwriting Fee - this is pretty high at $900, I am inclined to say this is put in as a place holder but the there are two fees inside of it, a processing fee (for the broker) and an underwriting fee (for the lender).  None the less, you can find lenders that do not charge either or have much lower fees than this.
	
	Section 802 - Origination Credit @ 1.875% - You need to ask what this is for.  The manner in which this is structured the broker is giving you back $5,419.13, that is why the number is negative.  (This would offset the above underwriting fee)  I am inclined to think this is the broker is using the line to attempt to disclose his Yield Spread Premium (YSP) but that is not the right line for it.  It is not customary for a borrower to get credit from a lender, especially thousands of dollars in credit since the money received in credit would be better spent reducing the interest rate.  The interest rate you have looks like market or close to it, so I think this is a miss located broker fee that is on there in the wrong place and doing the wrong arithmetic for you estimated out of pocket costs.  
	
	If the fee is paid to the broker by the lender for selling an interest rate, which is how brokers get paid, it has to be disclosed to the borrower.  However it is disclosed as non effecting number to the borrower.  It does not make your cost to close go up or down since it is payment between the broker and the lender.  If this a sloppy attempt to disguise a broker fee or origination fee, which should be above in the 800 section, never talk to this guy again.  
	
	Section 804 - Appraisal Fee - this is twice the cost of an appraisal.  This is a concerning entry for me, if one of my brokers ever did this, they would be fired in an instant.  Appraisal Fees have to be paid to the appraiser, usually outside of closing and they cost $350 not $700.  A $700 appraisal would be if the property was very large, like a mansion or was a bit special like a ranch or something.  A standard residential property (single family home, condo, town-home) will cost $350 plus or minus a couple bucks.  
	
	Section 805 - Credit Report - this is another flagrant fee.  Credit Reports are restricted from being a revenue center for brokers and lenders.  This means the cost of the report can be passed on but with no margin (profit) to the borrower/customer.  A credit report for most lenders is around $9 to $12.  This document shows it at $100.  
	
	Nothing stands out on page two that is not seemingly ordinary.  
	
	Based on the entries for 805 and 804 along with the confusion of 802 my radar for what this broker is doing is at concern/alert.  Some of this can be attributed to lazy and lack of attention to detail put that is not to be confused as a reason for it to be improperly setup.  
	
	The issue you have with that is only the Good Faith Estimate is governed by regulation for proper estimates of numbers.  So this form, while used by some lenders is not really a regulated form and since you didn't make application there is no real complaint.  
	
	IMO, you will do well to go sit with a bank and get them to give you a quote.  You will find their closing costs will be much lower and in many cases more accurate.  It is good you are doing research before jumping in.  If you run into other questions post them here in BP and you will get answers.  
	
	Welcome to BP.

Wayne Brooks · Answer

Agree with @Dion DePaoli on the fees.  And while the 4.25% does seem to be at market, that YSP credit of $5419.13 is indeed just that, a "rebate" for paying a slightly higher interest rate.  I wouldn't be surprised if the rate ends up being higher, as the 4.25 seems to be at market.