Lender Versus Borrower Paid Mortgage Transactions

In this blog, we will discuss lender versus borrower paid mortgage transactions. Mortgage brokers can often opt to go with borrower paid for a mortgage borrower in order to save the borrower commissions. There is no such thing as free in the mortgage industry. The way mortgage rates are charged is the higher the lender’s compensation, the higher the mortgage rates. Mortgage brokers can only charge a maximum of 2.75% yield spread premium. The yield spread premium is the compensation the mortgage broker makes.

Can Mortgage Brokers Get You Lower Rates?

Mortgage brokers need to disclose their comp on the closing disclosure. Mortgage bankers do not have to disclose their compensation on the closing disclosure because they use their own money to fund the loan. Most mortgage bankers will charge substantially higher compensation than the 2.75% yield spread premium mortgage brokers are allowed to charge.

Is It Better To Work With a Mortgage Broker or Mortgage Banker For Best Rates?

Mortgage rates are lower when dealing with a mortgage broker versus a correspondent or mortgage banker. Mortgage brokers can opt to give borrowers a break by charging a lower compensation than the standard 2.75% yield spread premium. If the mortgage broker decides to give a lower comp than the standard 2,75% yield spread premium, the transaction needs to go borrower paid. By going borrower paid, the loan officer can charge less than the standard 2.75% yield spread premium.

Is a Mortgage Lender or Mortgage Broker Better?

Understanding Lender Versus Borrower Paid Mortgage Transactions: Gustan Cho Associates will continue to bring our readers up to date on mortgage announcements throughout the COVID-19 coronavirus outbreak. In this blog, we will detail mortgage lender compensation as the mortgage industry is rapidly changing from this coronavirus outbreak. We will also touch base on how to apply for a purchase or refinance mortgage loan at Gustan Cho Associates.

How Are Mortgage Brokers Compensated For Loan Origination?

Mortgage companies are compensated in one of two ways, lender paid or borrower-paid compensation. These terms can be quite confusing to somebody who is not in the industry. We will now dive into the basics on each compensation structure. In this article, we will discuss and cover Lender Versus Borrower Paid Mortgage Transactions.

How Does Lender Versus Borrower Paid Compensation Work?

Lender paid compensation is when the mortgage broker charges the standard 2,75% yield spread premium which is paid by the wholesale mortgage lender. This is the most common type of compensation for mortgage companies. In fact, many borrowers may not be aware of how this works because it is so common. Lender paid compensation incorporates the mortgage company’s compensation into the interest rate provided. The upfront fees are lower and the interest rate is usually higher. The mortgage company will be paid based on the interest rate selected.

Can Mortgage Brokers Get You Better Rates?

Please keep in mind, the Consumer Financial Protection Bureaus (CFBP) now has threshold laws in place on how much a mortgage company can be compensated (YIELD SPREAD PREMIUM). When utilizing lender paid compensation, there are cases where it is possible to take a higher interest rate and receive a closing cost credit, called a lender credit. This is a well-used practice with higher credit score borrowers. With the market up and down due to the COVID-19 coronavirus outbreak, lender credits are less prevalent throughout the industry.

Borrower Paid Versus Lender Paid Mortgage Transactions

Borrower paid compensation is when a loan officer charges a lower compensation plan than the lender paid compensation of 2.75% yield spread premium. This is a different type of compensation compared to lender-paid. This is when the borrower pays the lender compensation at closing (out of pocket or with equity in a refinance. Usually in the form of discount points or an origination charge.

Will Borrower Paid Mortgage Transaction Get You Lowest Rate?

The borrower paid compensation practice is common for borrowers who are looking to get the lowest rate available. This is also a common practice with NON-QM mortgage loans. Depending on your financial picture, borrower-paid compensation can save you thousands of dollars over the life of the loan. Paying a 30-year mortgage at a lower interest rate is usually beneficial, assuming you have the upfront funds to pay the borrower paid compensation.

The Mortgage Loan Process Step-By-Step

Applying for a mortgage transaction with Gustan Cho Associates is very simple. Whether you are trying to purchase a primary home, purchasing a second home or investment property, or refinancing your current property, the process is almost the same. You will first call Mike Gracz on 630-659-7644 or send an email to mgracz@gustancho.com. You and Mike will have a one on one mortgage consultation to figure out your overall goals with your mortgage transaction

Home Purchase Mortgage Transactions

For a purchase transaction, you will want to gather the following information:

• Last 60 Days Bank Statements – to source down payment
• Last 30 Days Pay Stubs
• Last Two Years W2’S
• Last Two Years Tax Returns
• Driver’s License
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Lender Versus Borrower Paid Mortgage Transactions On Refinance

If you are trying to refinance a property you already own, below is the documentation you will need to gather:

• Driver’s License
• Last 30 Days of Pay Stubs
• Last Two Years Tax Returns
• Last Two Years W2 or 1099s
• Mortgage Statement
• Homeowners Insurance Policy

After you have sent in the information, Mike will hook you up with a licensed loan officer in your state.

Understanding Home Buying and Mortgage Process

Once you and your loan officer have connected, you will fill out an online application link, which will allow your loan officer to verify your credit report and use the documentation you sent in to complete your pre-approval. Depending on your qualifications, your loan officer will work backwards based on your debt to income ratio combined with your credit score to see exactly what you qualify for. A refinance transaction is slightly different, but your loan officer will know what to do.

Over 80% of Our Clients Could Not Qualify at Other Mortgage Lenders

Even during times of the COVID-19 coronavirus outbreak, the team at Gustan Cho Associates are always very busy. Our staff is working remotely and working extra hours to fulfill our current and future client’s needs. The real estate sector is a key pillar in the United States and the Global economy. It is important that mortgage companies continue to do all they can to keep the housing industry afloat.

The U.S. Economy With Record High Inflation

These are tough times on many Americans and a record number of Americans have filed unemployment over the past few weeks. During the great depression, we had approximately 23% of our population unemployed. To my knowledge, the number is currently around 13% of the United States population being unemployed. That is an astronomical number to think about as unemployment was at an all-time low within the past six months.

We must use this time to come together as a community. We ask that during these times of social distancing you reach out to your friends and neighbors to make sure everybody is safe. It is going to be a group effort to get our economy and lifestyle back to normal. For more information on mortgage-related questions, please call Mike Gracz on 630-659-7644.