Why Do Veterans Pay An Origination Fee?
I was on the phone the other day with a veteran borrower and they posed a great question, “Why do veterans have to pay an origination fee?” I thought, hey that is a good question and I bet others have asked that very thing. Veterans have access to the best mortgage financing available in America today, bar none. The VA allows veterans to finance 100% of the home purchase price. No where else can you find such a program.
With interest rates at 50 year record lows, many veteran families are taking advantage of the interet rate reduction loan offered by the VA. Of course any time you refinance your loan there are going to be costs. One of those costs is the origination fee. It is almost universally 1% of the loan amount, or one point, as many call it.
Veterans pay this fee as part of the purchase or refinance and there are several reasons why.
1. As a VA IRRL is processed it will be touched by nearly 20 people, from start to finish. From processing, to the VA, to the current lender to the new servicer, the title company, the loan officer and many other in between. There is work done by each of these parties and each party will receive compensation for the work done.
2. It is a fee for services completed– just like your taxes, or some other professional you trust, a lawyer or accountant. You expect the refinance to be done correctly, quickly and completely, as with any licensed professional.
3.There are a number of costs while processing a VA loan that the VA does not allow the veteran to pay for. The largest of which is the underwriting fee charged by the new loan company. It can be as much as $1000 and so any unallowable fee that is incurred as part of the refi must be paid out of that origination fee.
4.Finally there are some circumstances in which it is possible for the veteran not to incur an origination fee, or half of one etc. Commonly when a veteran or other home owner who is looking to refinance wants to do a “low-cost” mortgage. The lender will reduce their origination fee if the banks will pay for the refiance costs. The banks do this by having a higher interest rate then what is available and will make up the difference on the loan. This is not usually a great option because the rates on these “low-cost” loans can be up to 1.5% higher then the lowest rate that is being offered. For example, 4.5% is a rate at which we have been refinances veterans for alomst 3 months. You can do a “low-cost” loan at 6% but what good is that if you are already at a 5.5%.
Finally, you get what you pay for is what my Dad always said. Over the years his words of wisdom have become more true to me. See you around..