Tuesdays Tip: Flat Fee Mortgages

Not all mortgages are created equal! Every borrower is not eligible for the same rate, closing costs, and terms on his or her mortgage. However, the media has led to you to believe that borrowers are entitled to the best rate and terms. Should a borrower with a 780 Fico score get the same rate as a borrower with a 640 Fico? If a borrower only has a 5% down payment on a purchase should he or she get the same rate as the person that has 25%?

Without getting into too much detail, I can tell you that the gross income every loan is not the same. A purchase is more complicated than a refinance, hence the gross income on a purchase is typically higher than a refinance. Furthermore, a 100k loan may be much easier than a 750k loan, so the size of the loan determines the income.

I read about "flat fee mortgages" a little over a month ago and I tried to think of the most applicable scenario. I determined if you currently have a mortgage under $150,000 and your scenario is a simple refinance or an uncomplicated purchase, then this is a viable option. I would be willing to work at the rate suggested by the author of the article. Fortunately, a mortgage under 150k is not unreasonable in many parts of the country. Unfortunately, where I live in the Northeast it is less common! Also, I am part of a small percentage of mortgage professionals that would accept that offer, in large part because the gross income on a loan is very different than the net after expenses!

To keep it in perspective, a real estate agent makes 2.5-3.0% of the purchase price as his or her gross commission on a sale. A mortgage professional makes .5-3.0% of the loan amount as gross commission. The industry average is 1-1.5%. Life would be grand if I could make 1.5% on every loan, but unfortunately that is not the case nor do I want it to be. But is the compensation fair? As I have always said "If I don't do my job I lose your business, your friend's business, and you lose the house and your deposit. The real estate agent keeps showing you properties until you find one you like!" (Disclaimer: This does not all real estate agents. If you need a referral for an agent to which this does not apply, please feel free to contact me)

I am very interested in feedback on this topic. What do you feel is reasonable compensation? Should a flat fee apply to all loan amounts and types? Let me know!

Make it a great day!