Speaker A
The last thing you want is for a loan officer to tell you that buying a home is going to cost this much.
Learn how loan officers may hide true costs and manipulate monthly payments, and how to protect yourself when buying a home.
Key Takeaways
- Loan officers may hide or underestimate total closing costs to appear cheaper.
- Only section eight fees are controlled by lenders; other fees are estimates from third parties.
- Loan quotes are not binding; loan estimates are legal documents but often come late in the process.
- Monthly payment quotes should include principal, interest, taxes, insurance, and HOA fees for accuracy.
- Always request a full, detailed breakdown of all costs and compare multiple lenders before deciding.
Summary
- Loan officers often provide incomplete or misleading loan quotes to win business by hiding true closing costs.
- Lenders only control section eight fees (origination fees), but many other closing costs are estimated third-party fees.
- Loan quotes are not legally binding, unlike loan estimates regulated by the CFPB, which are usually provided only after contract.
- Many loan officers quote only their fees, ignoring or hiding appraisal, title, taxes, and insurance costs, misleading buyers.
- Some lenders advertise very low closing costs by excluding third-party fees, causing buyers to underestimate total expenses.
- Artificially low monthly payment quotes are another trick, often excluding escrow items like taxes and homeowner’s insurance.
- Incomplete monthly payment quotes prevent buyers from making informed decisions and can cost thousands over time.
- Buyers should compare at least three lenders, request full cost breakdowns including all fees and monthly payment components.
- Understanding the difference between loan quotes and loan estimates is crucial to avoid surprises at closing.
- Buyers should demand transparency and detailed explanations from loan officers to protect their financial interests.
Chapters
- 00:00Introduction to Loan Officer Tricks
- 00:27Why Loan Officers Hide Costs
- 00:59Inadequate Loan Quotes Explained
- 01:27Two Main Tricks to Watch For
- 02:00Understanding Section Eight Fees
- 02:28Legal Binding of Loan Estimates vs Quotes
- 02:58Hiding True Closing Costs
- 03:27Unfair Practices and Misleading Advertising
- 04:39Artificially Lowering Monthly Payments
- 05:47Importance of Full Monthly Payment Breakdown
Full Transcript — Download SRT & Markdown
Speaker A
And then they say, wow, things have changed, and it's actually going to cost this much.
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And then a few days later, whoa, things have changed again. And now it's this much.
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And you're sitting there thinking, where in the world did all these increases come from, and do we even have the money to be able to pay for this? This trick that loan officers do is so compelling that I've lost clients because of it.
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So, loan officers know that most people like you are shopping their loans to find the best rates and the best costs.
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So to win your business, so many loan officers will only quote certain costs that they're required to tell you when they show you how much it will be, or how much it will cost to buy a home. And I'll cover more on what these two tricks are, but a perfect example of this is I was talking to one of you, someone who was watching one of my YouTube videos.
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And they reached out to another loan officer on YouTube. And I'm not gonna name any names here.
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But yes, he said, "Hey, they gave me a quote, but all they did was send me an email with a rate in it and nothing else."
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And is this normal? Like, it was just, "Hey, here's your rate. Let me know when you find a home, and we look forward to helping you."
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And I was talking with them, like, how can you make an informed decision about a loan with such little detail?
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And the simple answer is you can't. If you just have a rate, you don't have all of the other information about a loan, then you can't find what's going to be the best option for you.
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And likely there's kind of a trick that might be happening in here where a loan officer's trying to get your business this way. And not being able to make the choice on which loan is the cheapest option for you can cost you thousands, if not tens of thousands of dollars over the period of the time that you're in the home and you have that loan.
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So here are the two main tricks to watch out for when you are talking with a loan officer.
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So number one is hiding your true closing costs. So when you get pre-approved by a loan officer, they likely will give you a quote showing you how much it will cost to buy a home, things like your down payment, your closing cost,
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everything that would include like appraisal fees, taxes, title costs, homeowners insurance. However, your loan officer and lender don't charge all of those costs.
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A lot of people think that the lenders are charging all these fees, and they're really not.
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They're giving you estimates of those fees, and lenders can only control section eight fees. Section eight fees are also known as origination charges or origination fees.
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They're the only fees that can be charged by a lender. So these are things like an underwriting fee, administration fee.
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It's section eight, page two in the top left of a loan estimate. And they're not allowed to increase after quoted on a loan estimate.
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So if a lender gives you a loan estimate that details what their section eight costs are, let's say it's a thousand dollars,
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they can't come to the closing table and then say, "Well, it's actually $2,000."
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Now they have to honor that quote or let it be lower. But the issue here is that a loan quote isn't binding, whereas a loan estimate is. A loan estimate is an actual legal document regulated by the CFPB, where a loan quote isn't.
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So it's frustrating that most of the time you can't get a loan estimate until you're actually under contract for a home.
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So you have to hope that the quote that you get from a loan officer when you're pre-approved is actually accurate.
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So what ends up happening is you ask the lender, how much is it going to cost in closing costs, and they're not telling the full story to you, only quoting you what they charge. They only quote you the section eight fee and not all of the other closing costs that are happening in the deal.
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With section eight fees only a portion, only a sliver of what the closing costs are. The rest of the closing costs not charged by the lender,
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again, are things like the appraisal, title charges, recording fees, taxes, homeowners insurance. Even though the lender doesn't charge these things, they need to be able to estimate those
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to use so you can get a full picture of what's going on when you're actually buying a home.
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Now it might seem innocent maybe to some, but it's entirely unfair for loan officers to expect
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most people to understand how all closing costs work together, especially in comparison to what a lender charges and what all the other estimated third-party charges
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are in closing costs. And they hide behind this idea that they're going to show you their numbers and not helping you understand the total costs of buying a home, almost putting the burden on you.
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It's like they sit back and say, "Well, you should've known all these other costs."
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It's just entirely unfair. And there's a lender in my area that does this all the time.
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So all their advertisements say, "Our closing costs are only $499," and everyone around here goes crazy
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because they're like, "It's only $499 over here with this lender." And so it's frustrating when I would give a quote to call,
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I would show them the whole picture. Right? You have, these are what your estimated taxes are going to be.
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This is what your insurance is going to be. Your recording fees, appraisal, title fees,
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none of which are charged by us as the lender. And those fees will add up to several thousand dollars, right?
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Just in Texas, you're probably going to be paying a few thousand dollars put into an escrow account. You're gonna pay a year of homeowner's insurance upfront.
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Title costs are going to run you probably at least a thousand dollars. And so what ends up happening is people would compare that, like this several thousand dollars of third-party costs not charged by us, the lender, but then compare it to $499
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because one other lender, that's what they charge in their section eight costs. But they're not telling you the full story.
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And it's so frustrating when I'm helping a client understand their total costs, and they say, "Well, this lender over here, they're only charging $499, and you're charging thousands."
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So we're going to go with them, only to realize far too late in the process that the lender hid most of the other closing costs and then blamed the client for not knowing how closing costs work. So backwards.
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And then far too many lenders only show you their fees because they want you to think their costs are super low compared to the full quote from other lenders.
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So if a loan officer isn't showing you all the estimated fees, even the ones they don't charge, they likely don't have your best interests.
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It's dumb and dishonest, and I'll show you how to protect yourself from it. But before that, one other trick that loan officers can do is by artificially lowering your monthly payment on preapproval quotes.
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So kind of hiding quotes in two different ways: the down payment, closing costs, like we just talked about,
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and also artificially lowering your monthly payment. There's a prominent lender out there that works with a lot of veterans.
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I'm not going to say their name. But for some reason, their software, I believe, got updated, but it wouldn't show fully accurate monthly payments to people when they were giving quotes.
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So a monthly payment quote should include your principal, your interest, your mortgage insurance, your homeowners insurance, your property taxes, and homeowner's association fees as well.
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That should all be included in your monthly payment because it's all something that you're going to have to pay.
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Right? So why not show the full thing, even if it's a quote? Right? Things like taxes, a lender has to estimate.
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They can't just leave it out because they don't know. And I don't know if they just had bad software or what, but it would never include escrow payments,
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so things like taxes and homeowners insurance.
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Right. So why not show the full thing, even if it's a quote, right. Things like taxes, a lender has to estimate.
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They can't just leave it out. Cause they don't know. And I don't know if they just had bad software or what, but it would never include escrow payments.
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So things like taxes and homeowners insurance. So they were always left out. Like, can you imagine like a lender quoting you a thousand dollars as a monthly payment?
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They say, Hey, it's only going to cost you a thousand dollars a month, to have a mortgage for this home, but then you get your first mortgage payment and it's actually $1,700 per month.
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Because of the extra escrow that wasn't included in that thousand dollars, you start to feel a little cheated and more sneakily than leaving off escrows.
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Our loan officers who kind of, drastically under quote a client on this happens often with online lenders who aren't familiar with the location, or they can't be bothered to do the 60 seconds of research.
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It takes to figure out like the local cost of our client is at. So for instance, like taxes on a home around here in Dayton, Ohio, $4,500 per year on a $330,000 home.
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It's not difficult to look up, find the area someone's looking in and look at what average taxes are around the area.
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But so many times I've seen quotes from other lenders where the loan officer said, taxes are only $2,000 a year.
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And the client will go with that lender because they think that their costs are lower.
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Like, no, it's just the loan officer, not giving you a quote that says accurate inconsiderate as possible.
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Because a lender can not control taxes. It doesn't matter what they quote you. The county will determine your taxes.
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So just because a quote is low, doesn't mean that it will actually be that cheap when the time comes.
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To write the check. Okay. So how do you getting tricked knowing the tricks is half of the battle, the other half is understanding exactly what you need to do as a borrower to make the right decision.
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So far, too many choose the wrong lender and then realize the cost got switched on them, , when they went under contract.
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And a lot of people feel like it's too late. Just know that it's not too late at that point to switch if you need to.
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But how do we avoid even getting to that point? The first place. So really one of the best ways to avoid getting tricked, is when you're comparing lenders.
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So first of all, you do need to be looking at different lenders. You can't just look at one and then say that works for me and move forward with it.
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Ideally, you want to be looking at least three lenders and only decide on the lender.
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Using the section a costs, right? We want to see the other estimated fees. I want to see what an estimate of taxes and insurance and everything looks like.
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So I can see the full picture, but I don't want to choose different lenders.
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I don't want to go with lender A just because they had lower taxes and lender B, because the taxes are going to be the exact same.
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No matter the home I choose. The only thing that's going to be different between these lenders are the section eight cost.
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And the rates and mortgage insurance that they have as well. So only want to be looking at those.
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And you can ask a lender. What are your section eight costs? What are your origination costs?
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Those are the only things I need to know when choosing the lender. It doesn't matter with the quote for insurance because insurance is something that you're going to shop for on your own.
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Also compare the monthly payment. With your own independent research. So they're likely going to give you a monthly payment.
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They're going to estimate taxes and insurance. I have a tool for you. You can text my number 9 3 7 3 5 8 6 5 4 2 texts, hashtag payment to it, and it will send you this free calculator where you can go and actually
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Compare homes. Side-by-side look at the monthly payment as well, and it will give you some averages of taxes you can put in there.
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You can also go look up things on something like Zillow and put in taxes in there too, to get an estimate of your monthly payment and compare that.
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And then finally ask your loan officer for full breakdown, including, you definitely want to have, your rates in there.
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You also want to have all estimated costs. Okay. Everything from, entrance to taxes, recording fees, title, appraisal, all that needs to be included in there.
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Even if it's estimated, even if it's not charged exactly by the lender. And I also want a full monthly breakdown.
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Okay. So in the full monthly breakdown, I should be seeing principal interest, mortgage insurance, property taxes, homeowners, insurance, and homeowners association fees.
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If you're looking in an area that has homeowners association fees, you should be seeing all of that from your lender and not just an email with a rate or not just a quote over the phone.
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I want to see a full breakdown of all of those things. Now, not every loan, officer's bad and out to trick you, but you do need to be aware of how you can protect yourself as much as possible and choose the best lender
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for you, which is exactly why I made this video on choosing the best lender who will guide you through the process and help you save the most money.
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Choosing the cheapest loan option.
Topics:loan officersclosing costsloan estimatehome buyingmortgage feessection eight feesmonthly paymentloan quotesmortgage transparencyhome loan tricks
