questions about closing costs for USDA Guar Loan

[Anonymous]

I have been preapproved by a mortgage broker here in Maine for a loan for $132,600--that is 102% of the sale price of $130K for a USDA Guaranteed Loan. It is a fixed-rate 30-yr loan at estimated 5.25%. (The house has been appraised for $142K, by the way, which was excellent news)

In looking over the Good Faith Estimate, I am stunned by the "Processing Fee" of $945 (item 810 on the form), and  "Underwriting Fee" of $645 (item 811). According to the book "Mortgage Rip-Offs and Money Savers," by Carolyn Warren (I SOOO recommend this book--and avoid my mistake and read it EARLY, especially before signing a good faith estimate)-- but anyway, according to Warren, these are "junk fees" and could be negotiated and should be avoided altogether if possible. I notice they are not recognized in the FHA booklet "Settlement Costs" except in a very passing reference--they are certainly not "official" fees and apparently can be as outrageous as the lender wants them to be.

My first question: do the amounts seem outrageous?? Can I say, hey,. these fees are exorbitant, I demand that you reduce them? (Warren says she insists she won't pay more than $300).

My father thinks I should "call their bluff" and threaten to drop the whole thing if they aren't lowered. At this point I am tempted, because I'm actually about $600 short of what I have calculated the entire total will be--though I could scramble and get family members to help me make up the shortfall.

I also see USDA Guarantee Fee 2% -- written in as $2730 -- actually more than 2% (which would be $2652 on $132,600). First, is a 2% fee to USDA normal? why would it be actually more than 2%?

Another question: "Estimated Closing Costs" at the bottom of the itemized list is $7514.83, but when I add them up, they total $7784.83, a difference of $270. There is no item in the list that equals $270. Is this a sleazy trick to make it appear that closing costs are less than they will be? What would explain this?

In Estimated Prepaid Items, it shows "Hazard Insurance" for 2 months, $70, and Property Taxes for 2 months, $200. It is my understanding that I have to have a year of homeowners insurance prepaid--but there is no mention of that on this form--that is another about $500 above and beyond these closing costs. The same is true for my prorated portion of property taxes for the remainder of 2009, which I estimate at $600 (though I don't know when the tax year begins and ends in this town).

Warren talks about "Yield Spread Premium" and the fact that a BROKER must disclose this upfront. I see nothing at all about this on the GFE and am wondering if maybe somehow it is because it is a USDA loan?

At this point I am getting such cold feet I am tempted to forfeit my earnest money ($1000), the appraisal fee I paid ($375), and the home inspection I paid for ($430).

Finally, a little off-topic--another post here made me wonder: the property has a 600-sq-ft "guesthouse" with bedroom, 3/4 bath, and another room, but no kitchen. Is this going to be a problem in getting this loan? Wouldn't the broker have said something about this (he is apparently reputable and handles a lot of USDA loans)?

Any advice our mortgage experts can give me on reducing these closing costs, or the course of action I can or should take, will be soooo appreciated! thank you!

[Anonymous]

I don't know particularly about USDA loans but reading a book that discusses conventional and/or FHA loans and assuming that it applies to USDA is like reading a toyota maintenance manual and wondering why you can't find the oil cap on your GMC.  USDA is a very specific loan program with low interest rates, easy credit qualifications, high LTV limits, etc.  I would not expect the lending/closing costs to necessarily fall right inline with conventional or even FHA.  Also, remember that any books you are readin now were likely published prior to the current market conditions and TONS of stuff have changed in underwriting, funding, and processing of loans even in the last 3 months.  I would not be surprised to see the fees banks charge go up as well to offset increased defaults, lower interst returns, and higher costs involved with everything.

Specificly, I don't know the answer to your questions, but I would not walk on a deal just due to a book I read.

Also, not all places require 12 months of insurance to be paid.  Some just require a few months paid up front (especially if it is a monthly bill). 

Some of those fees may be junk fees, and they may be legitimate in todays markets.  That is one problems with books that try to explain specifics of a situation that is in flux.  What was a junk fee a year or two ago may be prefectly normal now.  2 years ago having to have a second appraisal, over 620 FICO, higher down payment, and better proveable income/job history were not necessary.  Now they are often all required.

Good luck with the sitatuion.   

[Anonymous]

Thanks. Okay, granted, things are changing quickly now. The book was written in 2007. The Good Faith Estimate form does follow the format of the FHA form. All the numbered items match the items in their booklet. But you're right--the situation could be very different because it's USDA. I will hope for more insights to be posted. I'm planning to go sit with this broker on Tuesday to discuss all this.

[Anonymous]

Sounds like a good plan.  There is nothing wrong with asking questions (even alot of questions) about the GFE and listed expenses.  In this market things are changing very rapidly so alot of times the LO's are playing catch up almost as much as the buyer.  Just always keep in mind that advice in books or online is great to have around, but that that same advice usually does not have the full picture and can VERY oftern be based upon outdated information and/or policies in this type of an economic environment. 

[Anonymous]

I would in particular question the amouint charged for the USDA guarantee. That should be exactly 2% of the purchase price as long as there aren't any closing costs rolled into the loan.

[Anonymous]

Do you have a loan origination fee, and if so, how much is that?

We have a USDA loan in progress. Ours has a $1400 origination fee (Not bad on a $245k mortgage since other lenders we talked to charged 1%.) We have a $595 processing fee, but do not have an underwriting fee. There is also $600 shown as a loan discount fee, paid by the seller, that probably reduced one of the other fees - our LO ended up tweaking the numbers that way to fully use the flat $5k in closing costs that were to be paid by the seller.

[Anonymous]

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@Anonymous wrote:

Do you have a loan origination fee, and if so, how much is that?

We have a USDA loan in progress. Ours has a $1400 origination fee (Not bad on a $245k mortgage since other lenders we talked to charged 1%.) We have a $595 processing fee, but do not have an underwriting fee. There is also $600 shown as a loan discount fee, paid by the seller, that probably reduced one of the other fees - our LO ended up tweaking the numbers that way to fully use the flat $5k in closing costs that were to be paid by the seller.

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Yes, I do have a 1% origination fee of $1,326

The "Loan Discount Points" line is blank, so apparently I don't have that fee.

[WannaHouse]

I think the processing fee is awfully high. We just closed on May 4th, and our processing fee on a $105K loan was $475.00. I would go in and talk to them and just ask why that fee is so high. I would also let them know you are about $600.00 short to make this loan happen, and pray that will get them to lower it a bit. Demanding anything is going to get the door shut in your face IMHO.

Good luck