Finding a Mortgage With Bad Credit - Don't Pay Hidden Fees

by: Leslie Collins - 3/2006

Don't Pay Excess Origination or YSP Fees

If you are a bad credit borrower, you may have been led to believe you can't negotiate fees or interest rates on your loan. Wrong! You need to understand that these two items: Orignation Fee and Yield Spread Premium are two of the biggest bargaining chips you as a bad credit borrower have when negotiating your loan. These two items are precisely how your broker earns his money - The higher they jack up the origination fee and yield spread premium the bigger the brokers pay check.

Fee 1) Origination Fee

Ask flat out what the origination fee is for your loan - on day one of working with any broker. Try this: contact 3 online loan originators and simply inquire regarding what they charge for origination fees. Typically it is 1% of the loan amount.

Fee 2) Yield Spread Premium - usually not disclosed

Since the yield spread premium is not disclosed on the Good Faith Estimate in most cases you may not even know if it will be a factor in your loan until you get your HUD-1 settelment statement just before closing. Check your HUD-1 settlement statement around line 809 -it's in the category "ITEMS TO BE PAID IN CONNECTION WITH THE LOAN". **Understand that when you begin comparing loans your mortgage broker who wants or need your business badly enough will lower these two costs to keep you as a customer.

Yield Spread Premium - What it is

Yield Spread Premium - The lender who is actually funding your loan will pay the broker an extra 1% of the loan amount if he raises your interest rate by .25%. Say your loan amount is $100,000 on a 30 year fixed rate loan and you are offered a 6.5% interest rate by the broker. What the broker didn't tell you is you qualified for a 6% loan with the lender . The broker added .5% ( .25 x2 ) to your interest rate and made an extra $2000 off of your loan. What will this needless markup cost you? about $23,000 over the life of the loan!

How To Use Yield Spread Premium To Get the Best Interest Rate

SHOPPING LOANS is the best way to avoid being a victim of yield spread premium. When brokers want to keep you as a customer they will more than likely decrease the interest rate that was artificially inflated by the yield spread premium. Yield Spread Premium exists purely to put money in the brokers pocket. Bad credit borrowers typically don't notice it because they anticipate a higher interest rate anyway..

Summary

If you are looking for a mortgage with bad credit - realize you can lower your fees and interest rate - regardless of what you've been led to believe. . Put the mortgage broker on the hot seat - let them know YOU KNOW how they earn their money!. Chances are extremely high that all the brokers you get quotes from WANT your business and will lower their profit margins to get it. You just need to INQUIRE and be in control. So start the process of finding the best loan even if you have bad credit : contact 3 online loan originators and simply inquire regarding what they charge for origination fees and yield spread premium.


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