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Any reputable loan officer will start by telling you we can not really give you a 100% honest answer on this without knowing all the facts. But just a few pointers.
You are in a pretty good position with that credit score and being able to document your income and assets. Lenders will want to see that 5% and 2-3 months of payments on the home in reserves. Job and rent history are also important, as the program and rate can vary if there are gaps in employment history, career changes or unverifiable rent history.
This can affect the rate so anyone saying the rate is "too high" or "too low" is just guessing. It also depends on the DATE you were quoted the rate. Last Friday's unemployment numbers cause the yields on mortgage backed securities to drop, which means interest rates also went down.
I personally do not like brokers that charge application fees up front, I feel it locks in borrowers and decreases their ability to shop around as much. That is after all why they charge it (or to at least make $395 if you do switch). I make it policy in my office that we only charge fees on loans we do, but it varies in other offices.
As was stated the recast feature is only available with some lenders, and even if this lender offers it now there is no gurantee the loan will not be sold and the option will go away. I would not weigh that very high on the list and look at other factors.
A $4000 orgination fee at that rate does sound high. If there was no origination fee, that would seem perfectly acceptable however (not sure if that is the rate he quoted you when you asked for him to waive the fee and include it in rate).
Taxes, Insurance and PMI will not change. The taxes and the insurance are set based on the property and the company you choose. PMI is based on the type of loan, LTV, documentation, credit, etc but is provided by a 3rd party and is the same 99% of the time regardless of where you do the loan.
The number to REALLY look at is the APR on your truth in lending form. Every bank/broker is
required by law to provide you an initial application, good faith esitmate and truth in lending within 3 days of your application. The GFE shows you all the costs broken down by where it goes.
The truth in lending gives you the annual percentage rate, APR, which is the "true" cost of financing. That includes not only the interest you pay but also the finance charges you pay at closing to the broker (like the $4000 origination fee). You are required to be given this so you can more easily compare loans.
Example: Lender A gives you 6.5% charging $0 in orgination fee. Lender B gives you 6.25% but charges $5000 in origination fee. Looking at the APR lets you see which of these is a lower cost over the life of the loan.
Of course, the less time you plan to spend before selling or refinancing, the more important it becomes to get lower upfront costs and the less important rate is.
Example: Do you care if your rate is 5% or 6% if you plan to pay something off in 1 year if the lower rate requires $10,000 in fees?
A broker should also do a break-even analysis for you to determine how long it will take you to recoup the upfront investment in points and fees versus taking the higher rate. People get blindsided by "low rate" and forget that there is more to it than rate! You can probably get a 5% rate, but it would cost so much in fees you wouldn't want it!
Also remember, a GFE is as good as its name. Its an ESTIMATE, not a binding document. If the broker wants they can make it look like a great bargain by decreasing the estimates, then change them all before closing. Always take a copy of a GFE to closing (I bring one for my clients in case they forget and want to compare). It will never be 100% the same, and expect it to vary +/- $500 as estiamtes come in for insurance, title work, inspections, etc.
Ask them if they do any gurantee that their numbers are correct or if they will give you a credit if it comes in > a certain amount. I usually say mine will be within that +/- $500 window and if there is any error on my part we will honor the lower estimate (if taxes or insurance came in higher of course, nothing we can do about it).
Have your financial planner or CPA go over it with you as well if you have one. They can help you make sense of it and compare the different offers. If you trust the Realtor you can ask them as well, but if it is an in-house broker they may have a vested interest in them keeping the transaction.
Good luck, just ask away if you have more questions.... hope the long post was not too boring