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Mastering Loan Origination Fees & Points: An Essential Guide for Real Estate Brokers

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.

What is a Loan Origination Fee?

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.

What are Basis Points?

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 originations 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.

How Real Estate Brokers Can Use Mortgage Origination Fees in Negotiations

Loan origination fees and points are often negotiable. A broker can always ask the lender how to lower the fee or points. If the lender refuses, you can shop around for a different lender. Real estate brokers can help their clients negotiate these costs. Here are a few tips for how brokers can use mortgage origination fees in negotiations:

Understand the different types of mortgage origination fees.

Know the difference between a lender’s loan origination fees, basis points charged as a broker’s fee, and discount points that impact the long-term rate of the loan.

Know which mortgage origination fees are negotiable.

Does the lender allow the broker to negotiate any of the origination fees? If so, which combination of fees best serves the broker’s investor client on a particular deal.

Research lenders and their mortgage origination fees.

The broker’s job is to find the best deal for a client, and that means the broker needs to know how different lenders structure their fees.

Negotiate with the seller to cover mortgage origination fees.

In some cases, the seller may be willing to cover some or all of the mortgage origination fees if they’re motivated to sell. While that may be a rarity in a tight inventory market, it’s something that investors may be able to arrange. This can be a great way to save money on the purchase of a property.

Be prepared to walk away from a deal.

Be prepared to walk away if the lender can’t negotiate a fair level of mortgage origination fees. There are always other lenders.

Partnering with a Real Estate Broker and a Private Money Lender

Basis points on real estate loans are a great way to get more compensation that doesn’t show as an upfront fee, which is a huge benefit when brokers work with clients who are more fee-sensitive and require brokers to have lower upfront costs to “sell” them on moving forward with the deal. For example, brokers can do this on Lima One’s rental property and portfolio loans.

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.

Finding the right broker can also lead clients to a private lender like Lima One that can provide you with the financing you need to buy an investment property.

Here are some benefits of partnering with Lima One and our broker team:

• Access to more financing options: Traditional lenders may not be able to provide you with the financing you need for an investment property like a single-family rental or a fix and flip
• More flexible terms: Lima One has more flexible terms than traditional lenders, and we’re able to work with borrowers on loan terms and rates.
• Quicker closing process: We’re able to close loans quickly, often in as little as a few weeks. This can be helpful if you're in a hurry to buy property.

Regardless of your real estate investment strategy, Lima One is the lender you can count on. Contact us today to discuss your next deal, or if you have a deal in hand, accelerate the process by applying now.