Do you know what Box “A” is? It may sound like a boring subject, the “Loan Estimate”, but knowing the basics can save you a ton. Financial documents can be so tedious sometimes, but Box A of a mortgage loan estimate is very important for many reasons. Not only does it display fees by the lender but it can also be (in a round about or indirect way) tied to other fees that are part of the loan. The analogy I like to use is a spider-web. When you tug on one section of a spider’s web it tends to affect other parts of the web as well. Many loans are complicated things that have sometimes unnoticed connections to other fees (more on this later).
Brokers and lenders are required by law to send potential borrowers a federal loan estimate upon completing a mortgage loan application. The loan estimate is designed to display all fees associated with the loan and keep everyone honest. But what is BOX A? Box A is on page two of the loan estimate (top left). It displays the lender fees and/or origination charges. Many lenders, especially large “banker” type lenders and lending institutions have built-in charges sitting in Box A of the loan estimate (page 2). Why is this? Well in a larger sense, usually it’s because they have shareholders to keep happy. Put bluntly, they have to cover the costs of their giant marketing budgets and operating costs while keeping big profits up (i.e. – high margins). This means that many borrowers wind up overpaying for their loan (sometimes into the tens of thousands of dollars) when they could have gotten a better deal elsewhere.
Hidden Connections
Now, let’s say for example that your lender claims they will remove any fees from Box A (trying to compete). Ok, that’s fine. But what many lenders won’t tell you is that in order to do that they just move those fees to another part of your loan. This can result in something like a higher rate, higher closing costs, a higher payment, or increased/added fees in other areas. Big banker institutions have to make their money somewhere, and they typically have bottom line profit margins that must be met. This is why I think the low margin, low fee, broker model is way better.
Box A is “$0”
If your Box A is not showing $0 please contact me and I will show you how to get it there. I was a teacher for 17 years (I taught music) and I love helping my clients become more knowledgeable about these kinds of subjects. I will show you some of the tricks many mortgage lenders don’t want you to know (including how fees are often hidden within the numbers of the loan estimate).
