First Time Mortgage Bad Credit? How to Negotiate Lower Interest Rate and Closing Fees

"...4 simple but critical tips to ensure you get the best mortgage terms... "by: Leslie Collins - 3/2006

Here are 4 simple but critical tips to ensure you get the best mortgage terms - If you are a first time mortgage bad credit candidate, it's critical to your financial well being that YOU understand how to negotiate the best mortage deal with your lender.

Tip 1.) Broker or Broker Bank?

You need to first determine if the lender is a BROKER or BROKER- BANK. You definitely want to work with a BROKER. Why? BROKER-BANKS are nothing more than BANKS disguised as mortgage brokers. This allows them to avoid disclosing all the RESPA fees associated with the loan - fees that a true mortgage broker MUST disclose to you on either the GFE( good faith estimate) or HUD-1 settlement statement. In other words, it's much easier for BROKER BANKS to mark-up loan fees and interest rates without you having a clue.

Tip 2.) How can you tell the difference between a Broker or Broker Bank?

Ask who ever you are working with "in what name the loan will close under". Will the loan close under their own company or will it close in the name of a different wholesale lender? If the loan closes in the name of their own company it's highly likely that you are working with a broker-bank. Stay away from Broker Banks - you'll get confusing talk about fee structure and closing costs and will probably never get the best interest rate. Mark-up? you bet...stay away.

Tip 3.) What Should I Pay in Closing Fees?

So you've determined you are working with a true mortgage broker. What can you expect to pay him or her to process and close the loan? OK, ORIGINATION FEE - Pay no more than 1.5% origination fee, on a $250,000 loan you would be charged $2500 if the broker charged you 1%. NOT OK, DO NOT PAY "Yield Spread Premium (YSP)''- Do not agree to this mark up. Brokers will receive a bonus from the lender if they increase the interest rate on your loan. If you qualified with the lender for a 6% loan, the broker may offer you 6.25%. The broker receives as a bonus an extra 1% of the loan amount for raising your rate by .25% . On a $250,000 loan he makes an extra $2500.

Tip 4.) How can you make sure there is no YSP hidden in the loan?

To make sure you are getting the rate you truly qualify for, agree that your broker show you the 'lock sheet' from the wholesale lender. Make sure it matches the rate you are offered.

Go forth and get multiple quotes!

So...
- Working with a broker rather than a broker bank is critical regarding fee disclosure
- The difference between a broker and a broker bank is easy to determine
- Origination fees are acceptable ( up to 1.5%) but...
- YSP is a NO-NO, compare your rate with the wholesale lock sheet.
You now have 90% more knowledge than most first time mortgage bad credit candiadtes and are in position to get the lowest rate and fairest closing costs. Remember, knowledge leads to negotiation..Inquire with at least 3 online bad credit lenders using the above tips and you'll see...

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