← The David Greene Show
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- [00:00]
David Green
Welcome to Real Talk Real Estate, the show where we cover how to build wealth in real estate with no fluff, no BS and no sales pitches. I'm David Green and I've been doing this for over 10 years. I've seen the ups, the downs, and everything in between. This is the show where we pull back the curtain and show it to you, too. So if you want to build wealth through real estate or you just love learning about it, you found your home. What's going on, everyone? Welcome to Real Talk Real Estate. This is Mortgage Monday. I'm David Green, he's Christian Bashelder, and we are the one brokerage. We've got an episode for you guys today that is backed by popular demand. One of or maybe the best shows we've ever done on Mortgage Monday was a show where we broke down a loan estimate and actually explain every single thing that's on it and what you're paying for. Now, this is a step that should be included whenever you're getting a loan and often isn't as you're sent something and pressured to hurry up and docusign it and you don't know what exactly it is that you're signing or maybe you don't care. So if you're watching Today's show on YouTube, you'll be able to see our screen. If you're watching on Spotify, you may be able to see, but if you're listening on Apple or Spotify, please consider checking out this episode on YouTube so you can actually follow along with what we are talking about. If not, you'll still be able to get a good understanding of what it is, but it will really hit home if you can actually see the loan estimate that we're going to be sharing today and going over everything that's on it. Now, the goal of today's show is to educate you on what you pay for when you're getting a loan, what costs go to somebody like Christian and I at the one brokerage and which costs we have nothing to do with that we don't collect. That is not money going to us or the lender that we're brokering the loan through and how savvy loan officers and different loan companies can, for lack of a better phrase, rip you off by making it look like they're saving you money when they're really not. Christian has to deal with this on a daily basis, literally with clients that he's explaining these two and people that come to us that started with another loan officer where they smelled something fishy and they brought us the sushi and we were like, yep, that's week old fish. You definitely don't want to eat that. You want to get something out of the one brokerage pond. Christian, thanks for joining me today.
- [02:05]
Christian Bashelder
Absolutely. Yeah. It's one that we like David said back by, by popular demand we got quite a, quite a number of requests and comments and responses to the first time we did this on, on the previous channel that we were on on BP and thought the, the listeners, the David Green show could definitely benefit from from the same kind of breakdown we'll go through today.
- [02:24]
David Green
Yeah. And the, the place I got this idea from was I would occasionally see different real estate meetup groups. Like there's the Brrrr Invest on Facebook and it's weird that I was never included in the BRRRR Invest even though I wrote the book on it. And different like bigger pockets meetup group or real estate investors of insert city name that would say here's a screenshot of my loan estimate. My costs seem high. What do you guys think? Is this normal for a dscr? And, and they're asking people that are not mortgage professionals that only know because they bought a house at some point and have no frame of reference to be able to counsel them. And I would always wonder like why don't you just pick a freaking loan officer that you can trust that can explain it to you. But that's not the way it happens. Most people pick their loan officer based on a random referral from someone else, based on a clever marketing scheme based on a website that said this is the cheapest one and they end up working with a stranger that they don't know, they don't trust, they maybe don't even like. And, and they can't rely on the information that they're being given. We would like you to come to us so that we can walk you through this in person, just like we're going to do on today's show and hopefully build some trust and credibility with you so that when you want to buy a house or you want to refinance a house or you have a person you know that is buying real estate, you refer them to us so that we can help them with it. So Christian, if you have anything you'd like to add, feel free to do so. And then when you're done, we can go ahead and share the screen and get into breaking this thing down.
- [03:44]
Christian Bashelder
Absolutely, yeah. I'm excited to jump right into it. So like David said, for Those watching on YouTube, you'll see this, if you're watching any other media, I definitely recommend getting with us live here and watching on some format where you can view what we're about to show here today. Okay, so David, I'm going to share my screen and for all listeners, we're going to walk through an actual loan estimate from a borrower that we actually did a deal for. So, so let's kind of walk through how this is structured. This is the front page of your loan estimate. You'll see, obviously we have it blacked out for the client's security of their personal information. But you'll see the data issued, the applicants, the property address and the sales price. Behind this black box that I have redacted here, you'll see the loan terms on the Right. So this is a 30 year term, this is a purchase mortgage, this is a fixed rate, and this is actually a VA loan. So we'll talk about some unique things about the VA that is present on this loan estimate that wouldn't be on another one. And, and you'll also see the rate lock. So this was locked a couple months back. We're recording this in June, I guess one month back. This was locked in May. Okay. And scrolling down the first section, you'll see just a summary of your loan. This borrower was taking out a 400.
- [04:52]
David Green
Right.
- [04:52]
Christian Bashelder
Right around a $405,000 loan amount at an interest rate of basically six and a half, six, four nine. Right. You see a breakdown of his principal and interest, which is 2556. Pretty straightforward stuff. There's not really a whole lot of meat on the bones yet. Here's kind of scrolling down prepayment penalty. Virginia loans never have one. They're not allowed to. But if you were working with a loan product that was allowed to, this would be. Yes here. And it would explain the structure of your prepay. Same exact thing with balloon payment VA loan.
- [05:21]
David Green
Can you explain what a prepayment penalty is and what a balloon payment penalty is?
- [05:25]
Christian Bashelder
100%. Yeah, good question. So prepayment penalties, what they are is that usually within a certain time frame of your loan, anywhere from the most common or anywhere from one to five years if you pay off the loan early. And that could be anything from the sale of the house and payoff of the corresponding debt, a refinance where you pay off your loan and replace it with another, or even just maybe you won the lottery and wanted to pay your mortgage off. Right. Any of those would trigger a prepayment penalty if you're still within the term of the Prepay and like I said, those are usually anywhere from 1 to 5 years. They can usually range anywhere from 3 to 5% of your loan amount. So they can be a pretty big hefty fee. I mean you guys consider this borrower at a 400, 000 loan amount, 5% of that is 20 grand. That's not like an insignificant amount of money, right? So be careful. Make sure that if you're getting a loan with a prepay, which many loans have them, DSCR is one of the common ones that do. Make sure you understand the structure, the time frame and the amount of whatever prepayment penalty you're agreeing to. And obviously like I mentioned, conventional loans and VA and FHA included, they will never have prepayment penalties. So that's why you don't see it here. And in the same route, balloon payments, that's where your loans actually do in full. And very few loan products are structured with the balloon payment. They are out there. But this is a 30 year fixed loan. You can hold the loan for 30 years, it's never going to balloon. And balloon just means it's due in full. So some loans will be like a five year loan and then it's actually due at the end of five years and, and you have to pay it off entirely. And if the loan has a balloon payment structure, you would see it say yes here on your loan estimate and you would have the terms of your balloon payment, you know, after three years, five years, 10 years, whatever it is on the right hand side corresponding to that information. So moving down we're going to go into the next section where we look at the projected payments. This is where your monthly payment summary is. Obviously the first section is principal and interest which matches this line up here we see if there's any mortgage insurance. That's PMI for all the listeners that remember that term from previous episodes. VA loans do not have them. That's one of the biggest benefits of the VA loan. So obviously you can see mortgage insurance is zero here. FHAs will typically have them. And then also conventional loans where you put less than 20% down will have them. So kind of the classic 5% down primary residence purchase. You will have a section here for your mortgage insurance. Now it's very important to pay attention to because no matter what your rate is, you want to make sure you're also including your, your, your mortgage insurance into what your, your comfort level is right in your, in your mortgage payment because that impacts your monthly. Okay, and the third section is your escrow. Now Escrows are not always required. What an escrow payment is is that instead of paying the required payments on owning a house, that's property taxes and insurance, instead of paying them yourself. Usually insurance will be billed yearly. So you get one bill a year. And property taxes, depending on the county you're in, could be every six months or once a year as well. Instead of having to bundle up six months of taxes and property insurance and paying that yourself. The vast majority of mortgages in America allow for you to just include 1/12, so one month's worth of your taxes and insurance every month on your mortgage. And at the end of the year, the lender will package your 12 months that you've made and go pay those large bills for you. And you can see this borrower has an estimated escrow payment of 453 that includes his taxes and insurance. On the next page we can see how that 453 is split between taxes and insurance. But that's what that is.
- [09:15]
David Green
Something to be aware of here. The word escrow is used many times in a real estate transaction for different things. There isn't an escrow. There are many kinds of escrow. The most common one would be the period of time between when you put the house under contract and when it closes, called the escrow period. There is also the company that holds the funds which are said to be held in escrow. So this would be like your earnest money or your down payment when it's time to send it. In this case, what we're talking about is in fact, what does the word escrow even mean? It's kind of like a neutral third party holding funds, I guess would probably be.
- [09:51]
Christian Bashelder
It's an escrow account, which is what this one is. So just like there's the escrow period, an escrow company and an escrow account. I really think they should figure out new words because it is trying to make one word apply to a lot of things in the loan process. But unfortunately that's how it is in the industry.
- [10:09]
David Green
So in this case, what we're talking about is the lender is going to be collecting funds from you held in an escrow account, a neutral third party. And then they're going to pull those funds when it's time to pay your taxes and your insurance. And that's in their best interest because if you don't pay your taxes and the state or the city or whoever forecloses on you, they are in second position to that government agency. So they may not get all their money back. So they want to make sure you're paying your taxes. They also want to make sure you're paying insurance. In case the house burns down down, there will be money to pay them back. And so they offer this as a convenience for the people that are buying a house. You are not required to do this. Most investors do it because it's easier than remembering.
- [10:51]
Christian Bashelder
That's exactly right. Exactly right. So, yeah, as we can see here, guys, on the topic of escrow, you can see this section right below. The monthly payment, the 453 that we saw before. And then it says what it includes. It includes property taxes and homeowners insurance. And yes, both of those are in escrow. You have very rare circumstances where somebody may choose to escrow their property taxes but not escrow their insurance. Very rare. Usually people either escrow both or don't escrow both. But the option is there. If you wanted to kind of segment it. Like if you wanted to pay your insurance monthly because maybe you get a discount, it's bundled with your car loan or something, and you wanted to pay that, but you still didn't want to be on the hook for your property taxes. You could theoretically do that. And your choice would be broken down here on your loan estimate according to what you decide. Moving down, we'll see two very just generic terms, estimated closing cost and estimated cash to close. Now, this has a very unique. Cash to close is actually a negative number, which means the borrower is getting money back. And the reason they did that is because the VA is a 0% down loan and they already put a deposit. I'll explain that once we get to the second page. But some veterans actually have this unique circumstance where you actually get money back on the day that you close on your house. Very rare on any other loan product. You'll almost never see it unless it's a VA loan. But it's a good opportunity to discuss it. One thing that I do want to mention is the closer you get to the closing. Once again, I'm going to say of your escrow, right? And the escrow I'm referring to is the process of closing on the home. Once you get closer to your closing date, these numbers will get more and more accurate. Your estimated closing costs and your estimated cash to close. However, when you're day one of escrow and you're going around and shopping different lenders, you're getting different quotes. These numbers don't mean anything yet. And I'll explain why when we get to the next page. But just keep that in the Back of your mind as we discuss page two here. Okay. And with that, I'm going to scroll down here. All right, so this is where the meat gets the meat on the bone. Really, we can dive into here. This is your closing cost details page. This is really, really the most important page that matters. What this breaks up your closing costs into is all the way A through H in terms of sections here, okay? A is your origination charges. And very, very, very important, what I referred to just on the previous page, where nothing is accurate on day one. In order to understand that, you have to understand how to break apart your closing cost. And really, I'll separate them into two main categories. Let's call it three. Three main categories. The first one is your loan fees. That is the fee to get your mortgage. That is broken down in section A here. Okay? Section A, that is just titled origination charges. You can see for this borrower, he paid a flat $950. He did not have any other loan fee. Okay? So that's section A. We have only loan fees. The second section, I told you we're going to.
- [14:06]
David Green
How are we defining loan fees in this case, Christian?
- [14:09]
Christian Bashelder
Yeah, good question. Really, they can be certain. Lenders can be more tricky with it. On this loan, we had one origination fee. That's it. Some lenders will have points. You can see this borrower chose not to pay any points because if he did, it would be broken down here and then points would be on the right. Points are not usually mandatory on a loan. Points are when you want to pay money up front in order to buy down your interest rate. This borrower did not do that. He just took the the market. We call it the par rate because it costs $0. That's a golf term, right? You just shoot. When you shoot par, you shot exactly what you're supposed to do. You didn't less or more. Exactly. So this borrower chose the par rate as defined here because he didn't pay points. Right. However, lenders can get tricky. They can charge an underwriting fee, a lender fee points, an origination fee, a processing fee, a doc prep fee. There. There's an unlimited amount of terms that they can be what I usually tell people when you're comparing lenders, you gotta add them all up. Add up everything your lender is charging you. For instance, with us on this loan, this is the loan that we did at the one brokerage, our loan fee was 950 bucks. That's it. That's the only thing the lent the borrower paid for and, and it's actually less than that. And I'll explain to you why when we get down to the bottom of this page here. But we'll leave that on the cliffhanger. We'll explain that. Okay. But get back to where we started. I told you we're going to break your closing costs into three points and I'm going to address why your closing costs can't be accurate up front. The first one is loan fees that can absolutely be accurate up front. The lender knows what the lender is going to charge. Obviously that's us. We know.
- [15:58]
David Green
Well, they're disclosing it here, right?
- [15:59]
Christian Bashelder
That's exactly right. That's the only thing that is guaranteed to be accurate up front. Okay, moving into the second category, we have your third party fees. Those are fees charged by everybody else. So let me give you guys an example on this loan estimate. This is one that actually came closer to the close of escrow. But let's just assume this is the first thing that we sent out. You can see here on. I'm just going to pick one of these sections in section C where all your title fees go. You can see here we, we estimated that the title company is going to charge $3,164. Couple different, you know, nickel and dime fees, tax cert fees. A cpl the lender's title policy. You can see they're broken up into five or six main kind of categories here. Before we open escrow, I have no way I being the lender of knowing for certain what your escrow and title company are going to charge. Now I can estimate based on the number of deals that I've seen, based on the market average in your area, based on maybe one of our partner referral companies what they charge. But let me show you how, if I was a dishonest lender, how I could mess with these numbers. Imagine I said, oh no, I'm just going to put this at a thousand dollars. So what that, what I'm telling you is that your title and your escrow company are only going to charge a thousand dollars to do your deal, even though here you guys see it's 3164. Well, if I did that and I gave you a quote and then you went to another lender that quoted you honestly at this 3,000 number on the previous page, when I kind of left us on a, on a cliffhanger, the estimated closing cost would be $2,000 cheaper with that dishonest lender because they're quoting your escrow fees at a thousand and I'm quoting it at 3,000. So to the not educated eye, they would just look at they being the borrower who's shopping for their mortgage, would just look at their estimated closing cost and they would see, oh, Lender A is $2,000 cheaper. I'm going to go with lender A. Now here's where that falls apart. The first part of the escrow process that lender A will have to do is reach out to the title and escrow company and get their fees. And they will have to update what they quoted in this section with what the true fees are from that title escrow company. So they're gonna have to up it to $3164. Anyways, this brings me to my most important point here and how to kind of avoid a, you know, the dishonest kind of illusion that lenders can sometimes put in front of buyers that a lot of times doesn't get caught and people end up not getting as good of a mortgage as they could. When you're comparing lenders, erase all of the third party fees, the taxes and government fees, section B, section C, remove all of it from your consideration. No matter which lender you use, those sections will be exactly the same. At the end of the day, even if they quote them differently now, they will end up being exactly the same because the lender does not control third party fees. I don't control what your title and escrow company charges. I don't control what your county requires to when you file a recording of a new deed or what they charge. I don't control the appraisal fee. I don't control your homeowner's insurance. I don't control your property taxes. And even if I tell you you're not going to have insurance, oh, your insurance is going to be free. You can get a $0 policy. It doesn't mean that's the truth. Which means my numbers will have to adjust upward. The only thing you can compare is section A, origination charges and whatever other lender fees are in this first category. Okay? Very, very, very important. Okay, so that's, let's go on to our third section. I said we're going to break up the closing costs into section one which is loan fees. Section two, which is third party fees, which covers just on your loan estimate. Following along it covers section B here, your appraisal, your flood determination fee, your MERS registration fee, all these little fees, you can see they're not very much. $6, $3 okay, your escrow and title fees, which are in section C up here in section Are we missing D? D just adds A through C together. So D is not a real category. But if we go to E, then we have taxes and government fees. I do not control this. Okay, so that's still in our second category of closing cost. Now we're going to go to our third category, which is. David confirmed it earlier. But your escrows, this is your taxes and your insurance. And you can see section F and section G here, all have to do with your escrows for your insurance and your property taxes. Now, a lot of people get section F and section G confused because it looks like homeowners insurance and property taxes are appearing here twice. It's not actually the case, and I can explain it super easily. It took me when I first entered the industry a long time to kind of reason with this in prepaids, that is you paying what's due now. So for instance, homeowners insurance. You have to buy your first year of homeowners insurance when you buy a property. That's why it says homeowner's insurance premium 12 months. This borrower's homeowner's insurance was $1,051. Okay. Mortgage insurance premium. That's if there's any amount due up front. This is a VA loan, so there's not. But if you had a loan product that there was, there may be a number here. Second one is prepaid interest. This is solely determined on the day that you close. So you can see the borrower closed with 16 days left in the month. So you don't get a loan for free for 16 days. You have to cover the interest for the remainder of that month until they collect your new mortgage payment. Okay? And if you close on the last day of the month, that could be $0. If you close on the first day of the month, that could be a large amount. And the second category here, property taxes. Now, this is interesting because you guys can see here that property taxes, the borrower owes 12 months at closing. That almost is never true. However, what we do is that we quote, conservatively, most likely this borrower will owe anywhere from three to six months. That's usually the norm. And that's just based on the cycle of the tax billing. So if they happen to close on the last day and property taxes are due tomorrow, this could be true because the borrower would have to make that property tax payment and pay for the next 12 months. So it's not impossible. It's just Rare, because what's the likelihood that you close on that day out of 365 options? Right. But what usually happens is that the borrower and the seller, this is part of what the title company does have to balance out how much each of them owe based on when the ownership of the property is being transferred. That sounds confusing. The easiest way to explain it is from the day you enter the property as the new homeowner, you owe property taxes going forward every day. Previous to that, the seller, the old owner, owes their property taxes. It's usually not like a clean split. So a lot of times the seller has to pay a little, you have to pay a little, or the seller had already paid it, now you have to reimburse the seller, or you have to pay it at close and the seller has to reimburse you. And that's why the title company exists, because that's very confusing. What I would say is, don't worry about it. Let the escrow company do their job. That's why they're there. Okay. And section G, this is our last section of the cost worksheet, is your initial escrow payment. And like I said, you see the same things happen again. Homeowners insurance and property taxes. This confuses almost everybody. The prepaids. Let's just use the insurance as an example. You paid for your first 12 months. So if we're closing today, now, in June, I would have insurance until June 2026. Okay, because we're in June 2025 today. But when June 2026 comes, there's going to be a new premium collection needed by the insurance company. Somebody's got to pay for your next, your next year. How the lender does that is that they collect one month from you every month, from July, August, September, October, November. And ideally, at the end of 12 months, they will have enough to pay your 2026 coverage. Well, a lot of times insurance goes up, a lot of times there may be a shortage. So what lenders do is they collect a little bit of reserve. The most common is three months. So what the lender says that we want three months of your next year's coverage now. And then you're going to pay us 12 months. And at that point they'll have 12 months plus three in reserve. So they'll have 15 months of homeowners insurance. They're going to take 12 of that and pay it. And if your insurance went up, that extra three months will be enough to cover the overage. Okay, so this is basically your buffer. Section G is Your buffer for your property taxes and your insurance to protect you from any increases and to protect the lender from being short funds from what they've collected you. Okay, so prepaids are what are due now. Initial escrow payments are that reserves required in order to protect you and the lender in the future for your next round of billing cycles. Okay. Section H is kind of just a add anything else here. Kind of the catch all category. And you can see title has a title policy here that they added in. It is optional. You don't have to have an owner's title policy. We can cover that in a future video at a sake of time here. But there's an optional 996 fee that the borrower chose to pay here to have the title policy to protect themselves. And the final little thing that I want to cover here in J where they just add a little extra cherry on top is if there is lender credits involved. And what lender credits mean we mentioned in the first section, the borrower chose not to pay any points. He chose the par rate. Right. Well, it's the same way that I equate it to like when you fill up your car with gas, what's the likelihood that you fill up exactly $20 or $40 or $60? Like you're probably going to fill up like $21 or $25. It's probably not going to be a round number. Right? Rates are the same thing. So very rarely is there a rate exactly at zero. And in this borrower situation, he actually had a rate below zero, which means there was a credit going back to him. So really this raid was under par by $397. Now if that's confusing to you guys, we did a previous video talking about how rate sheets work. All that means is the borrower chose the first rate where he wasn't paying points and that rate just happened to be giving him a little bit of a credit in the amount of $397 that you see here at the bottom. And that 397 just deducts, you know, it paid for like his escrow reserves. You know, it just deducts from your other closing costs that you, you have. And at the very end you see a sum total of everything we covered. You see the total closing cost. You see the down payment the borrower was giving. You see his earnest money deposit. So you can see the borrower is putting $5,000 down. You can see seller credits. Ooh, juicy. We always talk about getting seller credits. And look how Much. This impacted the borrower. He actually got almost his whole deposit back. Right. So this is what I was talking about, a VA loan because there is no down payment technically required. I know it says 5000 here, but he already put a 5000 DOL deposit. He's actually getting $4400 back at closing out of his 5000 he put. And that's because the seller credit covered pretty much all of his closing cost. Right. So this borrower is in a good spot. He's actually going to get a check back at closing and the property. And that's the huge power of using your VA loan. If you're a veteran, guys, please reach out to us. It's the best loan in America. I've said it so many times. Give us a call. Please use your VA loan. Your VA loan is like a superpower in the lending world.
- [28:27]
David Green
World.
- [28:30]
Christian Bashelder
And that's a rundown of a loan estimate. David.
- [28:33]
David Green
Okay, let's cover some of what we went over here. First thing, most important thing to recognize, I believe it was group A under loan cost there. That's the part that the person who's doing the loan for you is making, as you can see, pretty low compared to everything else. One of the ways that salespeople hide costs is they move away from an individualized thing into a collaborative way of presenting information. So if you're a contractor that looks like someone's saying, hey, I'll do your remodel of your kitchen in your bathroom for 50 grand. That's how they want it. What you want is I'll replace your sink for this much money. I'll put in cabinets for this much money. I'll install your appliances for this much money. This is how much we're going to spend on the appliance. This is labor. They don't like that because you're going to now nitpick over every little thing and you're going to see that you're paying more than what you thought. Rule number one of negotiating is understand how the person you're negotiating with is going to be hiding information. This loan estimate is actually something that is legally required by the government when you're doing a conventional loan. This was part of the loan reform that happened after the predatory lending. So you have to make it very clear to disclose. But if you don't know what you're reading, it's easy for them to hide things. So as Christian pointed out, there are other costs that have nothing to do with your lender. Your lender does not control them. This is where unscrupulous lenders will do 80 to 90% of their bad acting, they will say, all right, let's assume best case scenario for your title, for your escrow, for your insurance. What are some other things, Christian, that I'm missing there? Mortgage insurance.
- [30:12]
Christian Bashelder
Yeah. Recording fees, owner's policy. Yeah. I mean, you're covering most of it. There's only so much that they can under bid. Right. But yeah, it's your appraisal maybe. Right. They may say you can get a 200 appraisal. No, you can't. You know, you can see here on this scenario, we quoted a 650 appraisal, which is totally reasonable. Right. That's. That's a pretty average appraisal fee, you know, but if you have working with a lender that says 200 bucks here, he's probably just trying to show you better numbers because there's no way you're going to get a 200 appraisal. It's just not possible. Right.
- [30:47]
David Green
There you go. But you don't know that. So what happens is they give you the 200, you pay 650. In all likelihood. You would never know that happened. You don't know because you're not going to be paying attention to what the appraisal costs. It's all wrapped up into the number. They say, wire this amount to escrow, and you go, whoa, that's way higher than I thought. I guess I don't know much about real estate. I guess I'm bad. I guess I just misunderstood. You blame yourself. All the money gets wired because you're in the intoxicated state of getting this house. You're so excited. You want to get your picture of you signing the paperwork so you can put it on your Instagram and tell everyone you just closed on another house. You're not looking at the details because you don't do this all the time. They're banking on it. And they know if they get called out and you go, hey, I thought the appraisal was 200. Nope, that was an estimate. Turns out it's 650. Sorry, I don't control that. I'm not the appraisal company. That's the way it is. Well, I don't want to pay that much. Okay. We're going to have to take it up with them. We can't do your loan if we don't get an appraisal. That's how this thing plays out. So there's no downside to them quoting you. Something very ambitious. It's neutral. If they get caught. They don't get hurt. You do. And then there's other things in there like this, that when you're asking several lenders for quotes, they're going to give you the pie in the sky. Best case scenario, you're going to go with the. Whatever number at the bottom is the lowest. And you think that you're getting the cheapest thing. Now, Christian, if you don't mind, as we wrap this up, there's another way that lenders rip you off and it's giving you the better rate, not telling you that you're paying extra in closing costs. And if they can hide those closing costs, let's say that they're charging you four grand more than what you thought you were going to be paying to get that rate. But then the escrow fees and the title fees were quoted lower than what they're actually going to be. When that number comes in bigger, they can say to you, well, it's because your title escrow is more than what we thought. And leave out the part that they also charged you more than what you thought by not being transparent. So just like work us through what that's that like shell game would look like.
- [32:50]
Christian Bashelder
Yeah, yeah, 100%. So let me walk you through. Actually, we just had a very similar situation to this happen with a client of ours the other day. So let's just use this as an example because it's in front of us. This borrower is getting a 6.5. So let's say you guys are, you know, being, you know, good, good home shoppers and you're going around and you're getting a couple different quotes. You're trying to get the best deal, right? Doing, doing your, your, your proper consumer due diligence. You call me and I tell you, hey, you're gonna get a six and a half rate. Okay? And let's say you go call Chase bank and you know, the loan officer picks up and he says, oh yeah, go in market rate for a VA loan today. Oh, I can get you a 4, 599. Wow. You say Chase is half an interest rate, Half a percent, an interest rate cheaper than the one brokerage. That's great. And you decide to go with them. What's being missed here is you're not actually getting a true quote. My quote was at par, which like we explained, did not have any points. And in reality, my five, my 6.5 costs you $950 minus the lender credit of 400. So it's like 550 bucks. Roughly. So I'm offering a six and a half for $550 as a loan fee. Okay. If you were to get the same loan estimate from Chase, you'd see a 599. That's fine, no arguments there. But you may see, like David said, just give an example. You may see $4,000 in added fees here that they did not tell you. They didn't tell you that the rate's 599 if you pay $4,000. They just told you it was 599. Well, if you're not, if you don't know things like this and not doing your property diligence, I can quote you599 as well. It's kind of the public misconception that lenders only have like one rate of the day. And that is absolutely not true. We have an entire rate sheet. I could go get you a 5% if you wanted. I don't recommend you go pay the $25,000 it takes to get down to it. Right. But we can see all of the different rates. So where you thought I was half an interest rate higher than Chase, if I went and compared my 5.99% today, maybe I would be $3,000 instead of 4,000 and I'm still a thousand dollars cheaper than Chase. But you didn't ask the question, right? You just asked what's your rate? And the biggest, the biggest thing that consumers can do to open yourself up for being taken advantage of like this is just asking what is your rate? With no follow up questions. That's it. If you just ask what's your rate? You can get tricked so much easier than if you say what's your par rate or what's your rate and what are your fees? Or give me the rate stack. I've just started with borrowers. I just send them the entire rate stack. Here's where every rate is and every fee for every rate is you pick the one you want. That way when they go to another lender and they say what's your rates? And they say six and a half for a thousand bucks, they can just go to my rate sheet and compare that line. Right. And I think more lenders should operate that way because it, it protects the client. It's ultimately in the clients way better. It's in their, their favor. Right.
- [36:11]
David Green
I've thought about writing a book called what's your rate? And other questions you should never ask. You just, you set yourself up to get lied to so, so easily. And, and it's a shell Game. It really is. You can hide money in so many different places because if somebody asks what's your closing costs? You're going to give them the highest rate that you've got with the lowest. Be like, hey, I'll tell you what, if you do a loan with me, I'll credit you $7,000.
- [36:33]
Christian Bashelder
What? Oh, I have to mention something on this, David. I have to mention something. All of these people get this all the time. I get this almost daily. Hey, Christian, if I buy this property with you and I refinance later, can you offer me a free refinance, A no cost refi? And the answer is yes. But we don't market that because once again, it's dishonest. When you get a no fee refinance. What the lender is doing, we can show you. Actually, this is a great example because on this deal you can see the borrower is getting a $397 credit, just like we discussed earlier. Well, if I took this interest rate from six and a half up to seven and a quarter, this credit would probably be like five, six thousand dollars. So what I can do is I can say I can do a no cost refi for you. I'll get you a $6,000 lender credit which will cover all your closing costs for your refinance. But guys, you're not getting a free service. You're getting a rate almost 1% higher than what you should get at the market average. That's not a free refinance. You're paying for that over 30 years with a much higher interest rate. Right. So same thing that David just said. If you line up questions in a way that you could be taken advantage of, you're opening yourself up for so much negative impact, both in the long term projection of your loan and just in your closing costs. Ask the full question, get the full rate sheet, bring it to a loan officer you trust and get a competitive quote, knowing that they're actually being honest. It's so important.
- [38:04]
David Green
Yeah, because you can tell someone, for instance, hey, I'll credit you $7,000 if you do a loan with me. The assumption is you're giving me your commission so you're not getting paid, or you're only getting paid 500 bucks. But what they're doing is they're saying it's a lender credit, which if you think I'm the lender, it sounds like I'm crediting to you. It's a semantics game. But I'm the broker. The lender is basically saying, because you Signed up for a 9% rate instead of a seven and a half, we'll give you back $7,000. And the person you're communicating with is just using clever wordplay, which we all learned when we got into this. And we know that's how a lot of our competition, I'd say most of them, they do it this way. And so you think you got a good deal until you go sign those documents and it's a 9% rate. And you call the person and you're like, what the hell? And they go, yeah, that's what it is. You wanted that, remember, of the lender credits, this was on you. And now you either lose your earnest money or close on the house and tell yourself you're going to refi. So that's, that's another trick they'll use. And the last one that I'll bring up is when you talked about a no cost refi, what that will often mean is like, hey, you're not going to have to come out of pocket for anything. We are just going to take all of the expenses and add it to your loan balance. So you used to owe 640,000. We'll do a no cost refi, which sounds like you're saying free refi. But what you're saying is when this is all said and done, you will now owe $655,000. But hey, you dropped your rate by a half a point or a point and you're happy about it. You just added 10 or $15,000 to your debt. And this is, it's legal for them to do this because you're looking at the paperwork and you don't know what you're reading. This is one of the things that we've committed to at the one brokerage that we will not do. We've had people that worked for us before that asked if they could do these things. We said no and they left our company and, and now they're working for other people ripping you off. This is a, unfortunately, it's a common problem in the lending industry. It's a common problem anywhere that people don't understand the language that's being spoken to them. Lenders used to prey on people that didn't speak English. Like in California, there was a lot of Spanish speaking people. They got ripped off when the, the, before the last crash in like 2002 through 2005 or six or so. If you don't speak the language of numbers, you are illiterate. You, you are going to be ripped off. So please don't let that happen to you. Don't let it happen to your mom. Don't let it happen to your cousin. Send them our way. Christian, if people want to talk to you, where can they go?
- [40:33]
Christian Bashelder
Yeah, David, if anybody ever wants to know more about our company, obviously our website is the one brokerage.com that's where you can find out more about our loan products, who we are, what we're about. If you want to get in touch with me directly, I'm on social media at the One Broker. The One Broker on Instagram is the best place to catch me. And if you just want to reach out to me directly, ChristianeBrokerage.com is my direct email that goes straight to my inbox. Ask me anything you got. We do also check our comments, so get on there. And if you want to have your question featured on a future episode, we'd be happy to answer it. If you get in there and and leave a comment on this video.
- [41:09]
David Green
There you go. And if you have questions on this video and we didn't get to it, leave it on Facebook. Also, head to davidgreen24.com Ask where you can submit a question that I will answer on the podcast. We would love it if you'd submit more of your mortgage related questions for us to answer on the David Green show as well as here on Mortgage Monday. If you want to talk to me, if you want to thank me for the show, you want to ask a question that you're maybe embarrassed to talk about, you've got a rash on your butt or it burns when you pee. Hey, that's okay. Davidgreen24.com use the chat option. You can get a hold of me and I will connect you with a medical professional or a mortgage professional or real estate professional, depending on what your needs are. No matter what it is, I'm here for you. Christian, before I let you go, quick question for you. How is the mortgage mutt doing?
- [41:51]
Christian Bashelder
He is. He's around here somewhere. He was just laying on the couch with me here. But he is, he is good. We're down at the park playing, playing a little fetch earlier, so he's having a good time.
- [42:00]
David Green
All right, there you go, folks. For every loan that is closed with the one brokerage, a fairy gets her wings and Cinder gets a treat. So if you'd like to reward this good boy as he deserves, please let us know. We'd love to finance your real estate. All right, thanks for listening. Let us know what you think in the comments and make sure you subscribe to the subscribe Show. If you're not already doing so, please follow us on Spotify and Apple Podcasts and we will see you guys next week on Mortgage Monday.
- [42:42]
Christian Bashelder
Sam.