I finally got a rate lock from my Broker and I needed someone to let me know if I'm reading this right.  I see the Yield Spread is 100.25 on the rate lock.  Does this mean then I'm paying an extra .25% on the interest rate?  I'm not sure if I fully understand this correctly.  I'm locked at 5.5 so does this mean I technically could have gotten a 5.25%?

here is the full break down on the loan from the good estimate

Jim,

The YSP is paid from the lender to the broker.  0.25% in YSP does not equal 0.25% in rate.  If you were given a rate of 5.375%, you may have had to pay .25% - 1% in discount points.

From the information that you provided, your broker isn't getting paid much at all. 

How are you equating how much he's getting paid?  I'm guessing it has to do the the yield spread on the loan amount of $110,000

Jim,

If the Broker is getting paid .25 in YSP on a $110,000 loan, he will make $275 in YSP ($110,000 x 0.25% = $275). Based on what I see here, you are getting a great deal on your financing.

In addition to the YSP, they are getting $395 for processing and $152.02 for "Compensation to Broker".  All told, well under $1000 to the broker.  That is very cheap. 

Does the GFE contain specifics of the YSP or does it have to be calculated separately in some way?

It depends on if you are using a lender or a broker to originate the loan. If you see something that states: compensation from lender to broker, it has been worked out for you. If you see YSP 0-3%, than additional calculation would be needed.

Is there something about YSP that is troubling or you have a question about?

The GFE shows the compensation to broker at .13% I just did the math on it for the $152 or so unless I'm looking at it wrong.

So if I'm looking at everything correctly I'm going to pay the broker a yeild spread on the 110,000 loan at .25 and a .13 compensation to broker for about a total of $500.

Is my math off here?

something's off....where's the 1/4 pt?   Still a great rate at a great price

Sorry the yield spread on the rate lock shows 100.25, so it's not a 1/4 pt.  Guess I should have been clearer in the last post.

In my case, my broker provided me with a Good Faith Estimate in which an "estimated" YSP of 1.25% (around $4100) is mentioned for a loan of 335K. The GFE and the additional set of documents sent to me for signature (my loan application to be sent to the lender) quotes a rate of 5.875%. When I enquired, I am told this is just a place holder/estimated rate on the application since technically I am still floating (closing only on August 3rd) and will be revised when we lock. Does this sound normal?

This is for a 30 yr FHA loan in San DIego CA (338K loan, 345K purchase).

In addition, the broker charges include $650 for processing/administration.

Does the YSP above sound high? Even though I am floating and may lock my rate only in the coming weeks, does this mean I will end up paying a higher rate so that the broker gets the higher YSP? Sorry for the flurry of questions but I am just trying to understand the process right.

Jim Gilhousen:

Sorry the yield spread on the rate lock shows 100.25, so it's not a 1/4 pt.  Guess I should have been clearer in the last post.

100.25 is short for 100.25% of the loan amount which equals 1/4 of a point.  Bob is right when he points out that this should show up on your GFE.  One guess is the GFE lists Compensation to Broker, and that may have been the estimated YSP for that day.  When you locked, it probably went up to .25%.

Make sure when you close that the broker does not add any significant fees above those that are listed on your GFE.  For example, you should not have a broker fee or an origination fee of 1% at closing.

This is normal.  Many brokers will use a range of 0-3% on their GFE, since they don't know how much YSP they will be making.

YSP is paid from the lender to the broker for the rate that you receive.  This doesn't mean that you could receive a significantly lower rate if there was no YSP, especially on FHA loans.  For example: if you were offered a 5.5% rate and the broker made 1.25% YSP, the broker might have the option to offer you a rate of 5.375% but get only .25% YSP.  In that case, your monthly payment would be about $26/mo lower with the lower rate, but the broker would make $3,350 less.  This example may or may not be accurate, but I see similar pricing all the time.

FHA lenders tend to direct brokers to certain rates by pricing them very attractively within about a 1% range usually at 0.5% increments. 

Kent Mikkola:

100.25 is short for 100.25% of the loan amount which equals 1/4 of a point.  Bob is right when he points out that this should show up on your GFE.  One guess is the GFE lists Compensation to Broker, and that may have been the estimated YSP for that day.  When you locked, it probably went up to .25%.

Make sure when you close that the broker does not add any significant fees above those that are listed on your GFE.  For example, you should not have a broker fee or an origination fee of 1% at closing.

Man this gets confusing...

That makes a little more sense then.  So I'm just looking at one payment of the compenstation to broker on the GFE which equates to the yield spread on the rate lock.  I'll keep a close eye on the final paper work.  From my understanding I have to be given it 3 days before close so I have time to review it.  Is this correct?

It's always good to double check the final numbers against the estimates, but I have a feeling you won't be seeing any difference. 

You should be given a copy of the HUD-1 (final settlement statement), which will list all the charges and fees being paid out, at least 24 hours prior to closing, but you won't see any other closing paperwork until the actual closing.  For a refinance you will then have 3 days to cancel the loan if you wish, which is called the right of rescission.  For a purchase, once it is closed it's completely finished and there's no going back.

The YSP is not out of order but the rate seems high.  With 1.50 in YSP the rate (at least in my branch) should be more like 5.25-5.375%...and that's based on the current market info with the sell-off in Mortgage Backed Securities today.  Yesterday it would've been 5.0%   

$650 for Processing and Admin are fine..there are numerous ancillary fees that a broker or lender are responsible for that add up on a loan file.  The processor is usually an actual person with a salary who needs to be paid from that fee as well.  

Robert C Keller

PRMI-Frost Mortgage Lending Group

robert keller:

Yesterday it would've been 5.0%

Robert,

I would guess he had received his GFE Monday or Tuesday at the earliest as the OP had posted early Wednesday morning.  You should know that this isn't comparing apples to apples, as the markets had gotten better over that time frame.  For all we know, the GFE was issued a week prior to the posting. 

On a slightly different note, me and my wife were initially planning to co-apply for the 30 yr FHA loan (San Diego,CA, both have around 770 score, purchase of 345K). However, my broker in consultaton with lender, is now suggesting that I apply alone due to my wife's good but short credit history(we both are on long term work visas..I have long credit background of 7+ years but wife has only around 2 yrs). A) It probably is not a major issue but I was just curious if it will in any way negatively impact our application considering 1) our "combined" income reduces by half but 2) the expected mortage is technically still affordable on my income alone. B) Can we both be on the title even though I alone am on the mortgage?

Jim Gilhousen:

From my understanding I have to be given it 3 days before close so I have time to review it.  Is this correct?

By law, you are entitled to receive the GFE 24 hrs prior to closing.  On a refinance of your primary residence, this is not really necessary as you have your 3 day right of recission.  Since you have 3 days in which to cancel your loan, there isn't necessarily a reason to get the HUD prior to close.  In practice, the HUD is often not finalized until the day of closing.  Hopefully your originator will call you prior to close to go over any changes from your GFE.

AP:

A) It probably is not a major issue but I was just curious if it will in any way negatively impact our application considering 1) our "combined" income reduces by half but 2) the expected mortage is technically still affordable on my income alone. B) Can we both be on the title even though I alone am on the mortgage?

I would not think that you would have a problem qualifying with or without your wife on the loan from the sounds of things.  As long as your income is sufficient for qualifying, there would be no negative impact.  If your income wasn't enough and the lender denied your application, then you could add your wife and use her income.

You may both be on title even if only one of you is on the loan.