By now I hope you've come to understand that the origination fee is actually the lender’s (and loan ofﬁcer’s) commission, that this fee is charged for the service of providing the loan (not for the actual money itself), and that it is ordinarily calculated—and quoted—using a percentage of the loan amount. In order to ensure you are paying a reasonable amount for this service, you must see past the “package deal” that the industry offers up as the normal and customary method of calculating this fee. You must discard the notion that the size of the commission should be directly related to the amount you wish to borrow. Instead, you should focus on what will be required in terms of knowledge, experience, skill, and effort, on the part of your loan ofﬁcer, to get the deal done. However, not all borrowers are created equal, and how you rate on the qualiﬁcation scale will play a leading role in determining what you will pay for service.
The Three C's - Character, Capacity, Collateral
Character - Know Your Credit
- Within the past thirty days, I have obtained a copy of my credit proﬁle from Experian, Trans Union, and Equifax, and all three are completely free of any type of derogatory item. True/False
- There has never been a late payment recorded on any debt I've ever had. (This includes recorded late payments that were not your fault, and errors that were later removed). True/False
- I have had little or no consumer debt (credit cards, auto loans, student loans, personal loans, etc.) for the past two years or more. True/False
- I have never acted as a co-signer on a loan for another person (friend, family or otherwise). True/False
- My name is not the same as, or very similar to any other family member or relative (“junior,” “senior,” “II,” “III,” same ﬁrst and last with different middle initial, etc.). True/False
- No other person (family member or otherwise) ever picks up my mail for me. True/False
- I have never received a pre-approved credit card solicitation in the mail and thrown it into the trash without shredding it. True/False
- I have never lost my wallet or purse, a credit or ID card, drivers license, or any other item that contains personal information about me, or thrown old bank statements, deposit slips, credit card statements, etc., into the trash without shredding them. True/False
- I have always paid all my medical and dental bills in cash at the time the service was rendered, and never allowed the physician, dentist, hospital, etc., to bill my insurance company. True/False
- I have never returned an item purchased on a credit card or disputed a charge shown on a monthly statement. True/False
- I have no college-age or adult children that are still dependent, or semi-dependent upon me. True/False
- I have never allowed a waiter, cashier, or other person to take my credit card out of my sight for even a moment. True/False
- I have no email address, have never connected to the Internet from a personal computer, have no social security number, pay no taxes, have no drivers license, live in a box on the side of the road, and pay cash for everything. True/False
Fortunately, the story had a happy ending: after six months, and six denials, I was able to get them their loan. But not without a heroic effort on my part to help them prove to their creditors that the derogatory accounts were fraudulently obtained, and to convince my employer that they were indeed a good risk. This is, of course, an extreme case, but it serves to illustrate the importance of monitoring your credit proﬁle, and how critical it is to choose a loan ofﬁcer who will be an advocate rather than an adversary.
Now, don’t worry that you won’t be able to get a loan if you have had (or now have) issues with your credit. There are loans for all types of borrowers, even those who have just emerged from bankruptcy or foreclosure. You just have to realize that, as a general rule, the worse your credit problems, the more it is going to cost you in terms of time and effort, rate, fees, and available cash (or equity) to make the deal. If you have any kind of credit problems, regardless of severity, take extra care to be accurate here. The thing to remember about the “Character” category is that any issue that tells the lender something about your willingness to pay will be evaluated. So be honest with yourself, and don’t pull any punches; and you’ll be in a much better position to choose the proper person to work with and to negotiate a fair commission.
Capacity - Know Your Cash & Earnings
Collateral - The Property Being Purchased
Yes, yes…I hear you’re incredulous cries: “What! You expect me to believe that a property has to qualify, as if it were a human being?”
This is because, although your lender is always counting primarily on you to pay back the loan, should you lose your job, or your business, or anything else that would render you unable to pay, the house will have to be sold to satisfy the debt. Therefore, the collateral is of great importance.
Once you've determined how you measure up as a borrower, you are ready to begin the shopping and negotiation process; but don’t forget the rule for deciding on a fair price for services rendered: Service can be good, fast, or cheap; and not even the best of borrowers can do better than two out of those three. Regardless of your ﬁnancial qualifications:
- If you need the loan fast, and you want good service, it won’t be cheap
- If you want it cheap and fast, the service will suffer
- If you demand exceptional service, at a great price, it won't be fast. Be prepared to get in line and patiently wait your turn, because that is far and away the most popular combination—and the hardest to ﬁnd.
It’s now time to revisit some familiar terms, and view them from another perspective.
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