Am I paying too high for origination charge? Buying new home in Shakopee MN, builder financed

Asked by Jenas, Shakopee, MN Thu Feb 3, 2011

Purchase - $296840
FHA loan with 3.5% down for 30 years fixed

This is how they broke up in broad categories
Estimated prepaid items $2731.70
Estimated Closing cost $7376.92
Upfront PMI,MIP $2864.50 (1% of purchase price), They added this to the loan amount to make it $289,314

In GFE section A
Our origination charge $9240.85
Receive credit of $4701.35 for the interest rate of 4.875%
Adjusted Origination charge $4539

GFE Section B = $8433.62, which includes following
Appraisal, Credit Report, Flood Certification, Upfront PMI, Tax service fee, W2 validation
Title services and lender's title insurance
Owner's Title insurance, Government recording charges, Transfer Taxes, Initial deposit of escrow, Daily interest for 15 days at 38/day, Homeowner's insurance for one year.

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Answers

13
Sherri Sherpy, , Saint Paul, MN
Thu Feb 3, 2011
Jenas,

You could actually do better with fees and rate. It may be very beneficial to get a 2nd opinion. Best wishes to you!
Web Reference:  http://www.sherrisherpy.com
2 votes
Michael Emery, , Minneapolis, MN
Fri Feb 4, 2011
I haven't done a lot of new construction, but it's my understanding that when you start looking for money from a builder, they typically offer you discounts on upgrades rather than lowering the price of the home or lowering the cost of closing/mortgage.

Builders buy wholesale so they are able to get discounts that homeowners would not be able to get on their own. It's certainly not a bad thing and 70 percent off is certainly an incentive to stay with that builder. I think a savvy new home buyer should always work a discount off up upgrades, especially in a down market.

And I'm glad to hear you have shopped around for your mortgage.
0 votes
Jenas, Home Buyer, Shakopee, MN
Fri Feb 4, 2011
I am seeing the point in your comment Cameron. I was able to negotiate another 1K in closing that makes it 9K. I spoked to thme and they said their closing cost is a bit high and that's why they are giving so much in closing. And the interest rate is not locked at 4.875 and it is just an estimate actual is 4.75% today. I will be given a choice to lock at the time of closing for 60 days at no additional cost.

Dan, I was thinking about that too. But they said they won't give any closing cost if I went with another lender. However, I may still be able to bargain for 1-2K as additional discount if it came to that. The fact is they have already given me about 70% discount on the upgrades I chose. So, they aren't willing to give any more.

It seems going with them would be more beneficial at this point.
0 votes
Dan Tabit, Agent, Issaquah, WA
Fri Feb 4, 2011
Jenas,
Is the $8000 strictly available for closing costs or can you use it for upgrades? If the money can be applied to desirable upgrades and you can get a lower loan quote from another source, you may be money ahead.
0 votes
Cameron Piper, Agent, Forest Lake, MN
Fri Feb 4, 2011
Jenas,

In my mind you may be paying non standard fees, but the choice is obvious. Spend $3K to get $8K, standard or not you still come out $5K better.

Cameron Piper
Coldwell Banker Burnet
Web Reference:  http://www.campiper.com
0 votes
Peter Boyle, , Minneapolis, MN
Fri Feb 4, 2011
First of all, The quote you received is not competitive for a standard lock period (45-50 days) and if you have a credit score of 660 or higher.

I should be quoting 2900 less in Origination charges today, with a .125% lower interest rate assuming there are not variables I have been unable to account for. One thing to verify is whether or not your builder and their lender have you in a “Golden Handcuff”, where they will give you free upgrades or pay a certain amount of your closing costs if you go with their lender. Some builders do this and the originating lender feels no need to quote a competitive rate/point combination.

I would be happy to review the offer you have been given, and compare it graphically to my offer on a side by side Total Cost Analysis form (follow link below for an example). Then you could make a rational decision based on all the facts. If working with your current lender is in your best interest, I would certainly point that out and explain why.

See: http://www.peterboylehomeloans.com/xSites/Mortgage/peterboyl…
0 votes
Jenas, Home Buyer, Shakopee, MN
Fri Feb 4, 2011
Thanks Michael and Dan. I did get a second one from Wells Fargo and there was a difference of approx 3K. Another fact is that the Builder's lender is paying upto 8K in closing on the condition that I finance with them. I am not sure how much they will pay for closing if I went with another lender. If the loss and gain on closing cost cancels out between the two lenders and interest rate remains the same would it make sense to switch? (Unless of course the other lender agrees to pay for the closing. Which is not typical I would guess).
0 votes
Michael Emery, , Minneapolis, MN
Thu Feb 3, 2011
If you haven't already gotten a quote from a 2nd lender, do yourself a favor and get one.

My guess is you didn't buy the 1st house you looked at, why would you take the 1st mortgage offer that was presented to you.

And while I haven't had the opportunity to work with Sherri Sherpy, lenders from other states speak very highly of her. (And no, I don't make a dime for that endorsement).
0 votes
Dan Tabit, Agent, Issaquah, WA
Thu Feb 3, 2011
Jenas,
I've been a mortgage lender since 98 as well as a Realtor. The origination charge you are concerned about is the fee paid to the Mortgage Company originating the loan. Just like Real Estate Commissions, origination fees are negotiable and will vary from lender to lender.
Without knowing much more, it seems high, so getting another offer may be a good idea. My guess is you may receive a lower rate and origination fee.
0 votes
Jenas, Home Buyer, Shakopee, MN
Thu Feb 3, 2011
Your response is making me more comfortable than before. I will ask for the breakup and post my findings. Thanks much.
0 votes
Cameron Piper, Agent, Forest Lake, MN
Thu Feb 3, 2011
Jenas,

Ask the lender to see a breakdown of all of the fees in this bundle. With the new RESPA changes there is likely multiple fees bundled together as one fee here. There is likely an underwriting fee for a few hundred dollars, and a doc prep fee for a few hundred more, and a couple of others that can no longer be itemized under the new rules. Get a breakdown though and find out for yourself, my guess is that you are only paying one percent in origination.

Cameron Piper
Coldwell Banker Burnet
Web Reference:  http://www.campiper.com
0 votes
Jenas, Home Buyer, Shakopee, MN
Thu Feb 3, 2011
Thanks for the response Cameron. I was concerned in particular about the origination charge under Section A of $4539. In general google research and talking to known people I get the impression that it is typically 1%. So I am confused.
0 votes
Cameron Piper, Agent, Forest Lake, MN
Thu Feb 3, 2011
My wife and I just refinanced our house and these fees are in line with what we paid. Was there one in particular that concerns you?

Cameron Piper
Coldwell Banker Burnet
Web Reference:  http://www.campiper.com
0 votes
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