Archive for Friday, July 31, 2009

New rule puts limits on lender setup fees

July 31, 2009

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Q: I want to apply for a loan to buy a house, so I visited the bank that I have done business with for almost 20 years. The bank’s loan officer said that I would need to give the lender an upfront fee of nearly $1,500 to cover the cost of a credit report, appraisal and other services “to get the ball rolling,” but the amount seems excessive. What do you think?

A: I agree that such setup fees are excessive. And now they are illegal. A little-noticed federal law that took effect July 30 requires lenders to provide each potential borrower with an initial disclosure of their estimated mortgage costs within three business days after the application is filed. If you don’t get the disclosure, you can cancel the loan deal.

Banks and brokers also are prohibited from levying any upfront fees except for a “reasonable charge” to order a credit report, which usually costs about $50 or $75. A banker or broker can no longer insist that applicants pay for an appraisal of the property they want to purchase before issuing the truth-in-lending disclosure. Banks must now provide a copy of the appraisal at least three business days before the loan closes.

It doesn’t sound as if the bank appreciates the nearly 20 years of business that you have given it. Call at least three more local lenders and mortgage brokers to see if you can get a better deal.

Q: My wife and I are planning to refinance our mortgage. Earlier this year, we received a check for $5,200 as the final distribution of my late father-in-law’s estate. Can we list the money as income on our loan application to improve the chances of gaining loan approval?

A: When most lenders review an application, they usually sort the income listed by the borrower into one of two categories: “permanent” income and “temporary” income.

Banks tend to focus more on permanent income rather than temporary income when evaluating a prospective borrower’s creditworthiness. Permanent income suggests that the customer likely will have the ability to make payments over the long term.

Though the check that you and your spouse received might not automatically boost your chances of getting the loan, it’s worth noting that the loan representative could consider the money as a “compensating factor” that may indeed bolster your approval chances if your credit score is borderline.

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