No lender fees and lender credits = higher rates; no free lunches

We’re back with another Jay Vorhees classic from his JVM Lending blog! This time, we’re talking about lender fees and credits. Read on to get Jay’s perspective, and then look for my input at the bottom:

We recently had a Texas borrower almost leave us for a competitor that was offering “no lender fees, no appraisal fee, and a small credit for closing costs.” Fortunately, though, the borrower sent us the “Loan Estimate” from the competitor and we were able to see that the competitor was charging a higher rate.

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In response, we easily matched the credit (and then some) and the interest rate, without giving up anything, of course, because we make more money when we sell loans with higher rates. This simply illustrates something I blog about often – there are no free lunches.

A lot of lenders use reduced fees or closing-cost credits to attract buyers, but those reduced fees and credits invariably come with higher rates.

Builder Exception

The only exception to this rule has to do with some of the offerings from builder-owned mortgage companies. Because builders want to control the process so badly, because they want to make 100$ sure all buyers are 100% qualified, and because they want to ensure they close on time (to maintain cash flow, bonuses, etc.), they sometimes give away the farm with their financing packages.

There is, however, a builder caveat too, and this is something my appraiser-friends point out often. Builders sometimes also offer very competitive financing solely to entice buyers into paying above-market prices for their properties.

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Knowledge is power and the process can already be overwhelming, but the more you know and trust who you work with, the better off you will be!

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