The home-buying process has a lot of moving parts, especially for real estate brokers. The numbers that determine the quality of a deal for a broker’s client are among the most important moving parts to understand. They include loan origination fees, origination points, and basis points calculation.
Loan origination fees can have a big impact on real estate brokers’ bottom lines. If a borrower balks at a fee, it can delay or even derail the home buying process and cost a client their deal and lead to lost commissions for the broker.
It’s important that brokers are familiar with these fees so they can best advise their clients.
The Impact of Loan Origination Fees
Loan origination fees are fees that lenders charge to borrowers in exchange for processing and underwriting a loan. These fees can cover a variety of costs, including the lender’s administrative costs, origination costs, and underwriting costs.
Loan origination fees can impact the amount of money that a broker’s client pays in overall closing costs, or the overall amount the investor needs to put down on a property.
Brokers can do a few things to mitigate the impact of loan origination fees. First, they can educate their clients about the fees and how they affect the overall cost of the loan. Second, they can shop around to work with lenders that offer more competitive fee structures. Finally, they can negotiate with lenders on behalf of their clients.
Basis Points Pro Tips for Brokers
Many lenders and brokers measure loan originations points in basis points. Basis points (BPS) are measured using this equation: basis points (bps) = Percentage (%) x 100. For example, 1 basis point = 1/100th of 1.0%, or 0.01%.
Other up-front loan costs are also usually measured in bps. A broker’s fee is usually charged at origination and measured in bps. For example, a broker may attach a fee of 2% to a loan with a 1% origination fee. The 200 bps become the broker’s revenue on the loan.
Also, many lenders offer the ability to buy up or buy down the interest rate on the term of a loan with origination points. For example, paying additional bps in origination fee may equal a discount on the overall loan interest rate.
Or a lender might be willing to lower the origination fee by agreeing to buy up the loan interest rate. These buy-up/buy-down options give borrowers the ability to customize their up-front and monthly payments to better fit their investment strategies.
The important thing to remember is that mortgage basis points charged at origination are one-time fees, while bps added to the interest rate affect the payments throughout the term of the loan.
Top investors know that working with a real estate broker can help them find the right property and negotiate the best price. They can also help you with the paperwork and closing process. Many investors choose to work with brokers for these reasons and more.
As your broker consultant, we are your internal advocate to make sure that your files move quickly and seamlessly. Be sure to take advantage of our available .5% -2% broker fees for your next real estate investment project.
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