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I have applied for a mortgage. The officer has been getting the paperwork together to send to the underwriters. The computer system already gave a "yes" two weeks aho when I was in her office. Today she asked for at least $350 application fee to be credited toward closing cost. She put it down as a prepaid and put it on the cost line for "appraisal". Then, since the appraisal is $495 and the credit check is $14 she asked if I would go ahead and give the $509 from my credit card. She said it was refundable as long as an appraisal had not been ordered and she and I would talk by phone before she authorized the appraisal. This should come after the offer, acceptance and inspection.
If there is an appraisal but no closing for some reason, I lose my $495.
My real etate agent said this practice is out of line. What do you think?
(FHA loan)
I do not know how an FHA loan works, but any time I have taken out a mortgage I have had to pay for an appraiser. The appraiser gets paid whether the borrower closes the loan or not. The same goes for the inspector and the surveyor if they are necessary. FHA may work differently but I have always paid the appraiser, inspector and surveyor out of my own pocket.
Maybe someone who works with FHA loans will chime in.
I would find a new loan officer. I never recommend that anyone pay an upfront application fee. I have never charged one and never will. The payment upfront for the appraisal is quite acceptable.
here is the e-mail: I need to collect an application fee of at least $350 from you in order to get this underwritten. This will transfer to any house you buy. I will need a debit or credit card.
It is refundable as long as the appraisal is not done. I had an FHA loan last year and no buyer closing cost were upfront, not even the charge to do the credit check.
Now I have to try to squeeze the inspection in before the appraisal and make sure I'm going to close before approving the appraisal. She said she wanted to do it (if the closing was 30 days) about after 2 weeks. This $350 could have been a prepay toward "something" else that is not paid until closing, like the MI or lender origination fee, etc. but it was put on the appraisal line on the list of fees. I think the officer wants a closing. I can not change lenders. I've been denied by 2 credit unions, both my banks, Wells Fargo #1 and city #1, Wells Fargo #2 in city #2, a stock broker that does mortgages and another bank and an indepenent mortgage company. My DTI ratio is too high. Guess who is approving this mortgage?
Wells Fargo #3 in city #3............!!...with a DTI of 54.84% and another independent mortgage agent said FHA limit is 46-47%. Somebody's wrong.
I agree with Victor, application fees are for the birds. Basically you would be out $859 ($495 appraisal + $350 application fee + $14 credit report fee) if the appraisal was done and the transaction not completed. The most you should be risking is the appraisal + credit report fee.
Appraisal guidelines changed earlier this year, they require the use of an appraiser who cannot be selected by the loan officer, and is 9 times out of 10 contracted by an appraisal management company (AMC). The AMC requires payment by credit/debt card usually, a small handful will accept a personal check... but it's not paid to the appraiser, it's paid to the AMC.
If there is any inkling that the home isn't 100% in perfect condition, it's always a good idea to get the home inspection done prior to the appraisal. Home inspection shows something you don't want to deal with and the seller isn't willing to repair, at least you didn't pay for the appraisal.
FHA doesn't have listed debt ratio limit, lenders impose their own limits. With FHA the preferred debt ratios are 31% for the house and 43% for the house + the consumer debt payments, but with an automated approval recently I've gotten housing ratios up to 46.99% and total debt ratios to 57.99% approved... need some good compensating factors though, such as great credit scores, or plenty of money (reserves) left in the bank after closing, 5-10% down... or some sort of combination of the 3.
I agree with Victor, application fees are for the birds. Basically you would be out $859 ($495 appraisal + $350 application fee + $14 credit report fee) if the appraisal was done and the transaction not completed. The most you should be risking is the appraisal + credit report fee.
Appraisal guidelines changed earlier this year, they require the use of an appraiser who cannot be selected by the loan officer, and is 9 times out of 10 contracted by an appraisal management company (AMC). The AMC requires payment by credit/debt card usually, a small handful will accept a personal check... but it's not paid to the appraiser, it's paid to the AMC.
If there is any inkling that the home isn't 100% in perfect condition, it's always a good idea to get the home inspection done prior to the appraisal. Home inspection shows something you don't want to deal with and the seller isn't willing to repair, at least you didn't pay for the appraisal.
FHA doesn't have listed debt ratio limit, lenders impose their own limits. With FHA the preferred debt ratios are 31% for the house and 43% for the house + the consumer debt payments, but with an automated approval recently I've gotten housing ratios up to 46.99% and total debt ratios to 57.99% approved... need some good compensating factors though, such as great credit scores, or plenty of money (reserves) left in the bank after closing, 5-10% down... or some sort of combination of the 3.
I've tier 1 level 1 according to Bank of America as far as credit risk. Score is 744. DTI = borderline, because I have passive income they don't count.
I've got $240,000 in assets and struggled to get this $40,000 mortgage.
I went to close to 10 lenders and all refused me due to the DTI but still all refused for different reasons, some could count my self employment income and some could not, some counted a capital stock loss in 1999 as a loss for 2009 (I've love to take the lending industry to court over that) and one lender out of the whole bunch, the #3 Wells Fargo said WE can increase your disability income by 25% because it is tax free and not a single lender before them said they could do that. That boosted my DTI greatly. It snuck me in. Even with my 54.84% DTI the most they can loan me is $39,468 ($40,000 - 3.5% + MI).
Assets mean nothing. I had a B of A loan officer say she had a guy with over 4 million in real estate and other assets and she had to decline his loan application due to his income.
Increasing tax free income is a standard in the industry. But after reading your other post about losses you are carrying over, it's really difficult to give an assessment in bits and pieces.
Both Bank of America and Wells underwrite to the DU on FHA loans, with very minimal overlays (their own added requirements). Meaning, if they get the computer approval you should be fine, provided the data was entered correctly.
Not sure what is going on with the Application Fee. BofA use to collect for an application fee, which was refundable if your loan was turned down......and if the appraisal cost them $125, they kept the difference. (The reason why they originally had the application fee, because they had their own appraisal company. They also accepted a lot of desktop appraisals). If they are now collecting both an application fee in addition to an appraisal fee, that could be out of line.
If it's an application fee, they must refund the fee if you do not close. If it's an appraisal fee, that money is spent and paid to the person providing the service. It is not refundable. Also, an appraisal fee is a pass-thru fee, they cannot "pad" it like the application fee.
Are you under contract? Is there a property identified? Quite honestly, it sounds like you are pushing for a definite decision (loan commitment) without a property. Not too many lenders will do this as a normal course of business. If so, that's why the Application Fee - they are using this to weed out the wanna-be buyers and the serious buyers, so they don't tie up their underwriters. (You would be amazed by how many tire kickers there are still out there). But be warned, without a property, half of the equation is missing........and all you will have is a definite-maybe.
As for the guy with 4 million in real estate and other assets, unless it's in hard cold cash, it's not an asset these days. Stock accounts, IRA's and mutual funds that are stock-based are only given 60% value. Someone with 4M in real estate is going to be required to have 6 months LIQUID reserves for all property payments in order to get a loan. It's not hard to figure out what happened there........and how precarious that situation (the guy w/ 4M) could be. The wanna-be real estate moguls still haven't made it to the other side of this crisis.
Increasing tax free income is a standard in the industry. But after reading your other post about losses you are carrying over, it's really difficult to give an assessment in bits and pieces.
Both Bank of America and Wells underwrite to the DU on FHA loans, with very minimal overlays (their own added requirements). Meaning, if they get the computer approval you should be fine, provided the data was entered correctly.
Not sure what is going on with the Application Fee. BofA use to collect for an application fee, which was refundable if your loan was turned down......and if the appraisal cost them $125, they kept the difference. (The reason why they originally had the application fee, because they had their own appraisal company. They also accepted a lot of desktop appraisals). If they are now collecting both an application fee in addition to an appraisal fee, that could be out of line.
If it's an application fee, they must refund the fee if you do not close. If it's an appraisal fee, that money is spent and paid to the person providing the service. It is not refundable. Also, an appraisal fee is a pass-thru fee, they cannot "pad" it like the application fee.
Are you under contract? Is there a property identified? Quite honestly, it sounds like you are pushing for a definite decision (loan commitment) without a property. Not too many lenders will do this as a normal course of business. If so, that's why the Application Fee - they are using this to weed out the wanna-be buyers and the serious buyers, so they don't tie up their underwriters. (You would be amazed by how many tire kickers there are still out there). But be warned, without a property, half of the equation is missing........and all you will have is a definite-maybe.
As for the guy with 4 million in real estate and other assets, unless it's in hard cold cash, it's not an asset these days. Stock accounts, IRA's and mutual funds that are stock-based are only given 60% value. Someone with 4M in real estate is going to be required to have 6 months LIQUID reserves for all property payments in order to get a loan. It's not hard to figure out what happened there........and how precarious that situation (the guy w/ 4M) could be. The wanna-be real estate moguls still haven't made it to the other side of this crisis.
Oh the data was entered correctly because I knew when they could not count my self employment income from 2008 and 2009 (the average of $298), and they could only count the $1652 from 2009 because the income source was "declining" my DTI was going to be higher and it was 54.84% but the computer gave a yes. I was asked to write a letter to the loan officer explaining why schedule D on my return is nothing but noise and the numbers mean nothing. Then he wrote a letter to underwriters too about it. However, he had to send them my 2008 and 2009 tax returns. That is not good. It's 65 pages total due to schedule D's of 23 pages each year. They may not know what they are seeing.
I called him back and he said the application fee would be applied to my cost and he had to put it on some line of some form so he chose the appraisal line. He said we will talk by phone before he approves the appraisal. I will make an offer, get my offer accepted, then inspection and then decide if I will proceed. No appraisal = refund.
He is sending them a huge package, 65 pages of tax returns for 2 years, showing I paid $509 prepaid, I guess to look like "good faith". He's telling them my assets. However this is Wells Fargo #3. Wells Fargo #1 send my application to underwriters and denied due to the capital loss thing. No application fee. Wells Fargo #2 was only a phone call of 30 minutes and the officer did some calculating and said based on what she was told by me it was a very uphill battle and she quoted a FHA DTI requirement under 50%. I knew mine was slightly over 50%. Something told me to go to the 3rd Wells Fargo in the 3rd city and try one last time, as two credit unions, one mortgage company, my two banks, my stock broker who makes home loans, all denied me for some reason or the other but mainly DTI. DTI does not reflect my passive income and THAT is why my credit score is 744 and tier one level one credit risk. DTI does not pay my bills. I do.
The problem with the broker was they could see my $80,000 in stocks but their rule was no home loans under $50,000 and I only wanted $40K.
I said can you loan me $50,000 and I use $40,000 to buy the house and improvements and I got a no.
WF loan officer says the letter of approval is good for 90 days and I am free to homes shop. I'm looking now but my max loan amount is $39,468.
Yes he knew the property I was looking at and the asking price was $40,000, so he deducted 3.5% down (FHA) and added MI to arrive at loan maximum. Today the seller lowered the price to $34,900 so I'm clear I think with Wells Fargo. It's a foreclosure and all new inside. But, when you live in a 1969 mobile home for 24 years anything is better, even a $34,900 3 bedroom brick Fannie Mae foreclosure.
My point is: No one, even Wells, is going to give you a mortgage loan commitment without a contract and an appraisal. Credit and qualifying is only 50% of the underwriting decision. The appraisal is the other half. And until they issue a loan commitment, the best you will get is a warm and fuzzy. Granted, it's better than nothing, but people (underwriters) may not even be in their job by the time you are ready to go back into underwriting with a property, especially if you buy a short sale.
I think you are looking for a guarantee in a world where everyone is telling you no. Paying the application fee just tells them you are serious. These big banks have no problem reversing a decision (a non-commitment approval), they'll just refund your fee. Don't ignore the warning signs you have received. Just have a healthy dose of skepticism all the way up to closing and make all of your decisions as if they may reverse their approval.
My point is: No one, even Wells, is going to give you a mortgage loan commitment without a contract and an appraisal. Credit and qualifying is only 50% of the underwriting decision. The appraisal is the other half. And until they issue a loan commitment, the best you will get is a warm and fuzzy. Granted, it's better than nothing, but people (underwriters) may not even be in their job by the time you are ready to go back into underwriting with a property, especially if you buy a short sale.
I think you are looking for a guarantee in a world where everyone is telling you no. Paying the application fee just tells them you are serious. These big banks have no problem reversing a decision (a non-commitment approval), they'll just refund your fee. Don't ignore the warning signs you have received. Just have a healthy dose of skepticism all the way up to closing and make all of your decisions as if they may reverse their approval.
I was told that the application fee had to be put on "some line, any line" on the cost sheet. The loan officer said he would put it on the appraisal line. It is not refundable if I do not close if the appraisal has been done. It is refundable if the loan is not approved or no appraisal is ordered. The agent gave me the letter of approval and said "you now have 90 days to "shop around" and after that a simple recheck of credit can get it extended." He knew I was looking at foreclosures, auctions, etc. and was not ready with a contract.
I'll find the right property, view it, have it inspected, and then I'll have to decide whether to get it appraised.
Maybe I find someone independent to appraise it for a fee of $125 so if they think the bank will come under, I can avoid their $495 appraisal and get a refund. The loan officer said I could use the $39,458 loan on a more expensive house as long as I took care of the difference in cash.
As time has gone by the house is now offered for $34,900 and not the 40K when I applied at Wells.
I was looking at bank owned properties and they requires proof of funds or letter of approval. I was the 2nd offer on one house last year because I could not get a letter of approval in time. Wells knows, well the loan officer knows, I'm biding my time waiting on certain houses to come to auction, or sold to the banks at the auction and then listed and other types of properties.
Soon, I may be in a position to offer cash and not need the mortgage. I do remember that Wells office #1, submitted my application to underwriters and it was declined.
They did not charge an application fee.
At Wells office #2, the loan officer talked to me on the phone with her calculator and my numbers and her saying they needed a DTI of 46%-48%. I knew mine would be over 50 with a mortgage, so she said it would be a very uphill climb to approval so an application was not formally submitted.
Something told me to go to Wells office #3, and I've at least got my foot in the door with a letter of approval. The computer gave a "yes". So, this experience says, if your bank says no, a different branch of your bank might say yes. My agent said few borrowers would take 9 no's in a row but not give up. I didn't give up, because even though DTI was the issue, each lender was calculating it in different ways and they all have different DTI's they required or sought = they were all inconsistent as if they had flexibility. One lender said "we have to have a DTI of 38% after the mortgage".
Wells #3 was the most liberal. They got me a yes with a DTI of 54.84% and increased my income by 25% because it was not taxable. I wondered why none of the other 9 could do that with my income. It sure helped my DTI. This Wells #3 officer wanted to help. He personally wrote a letter about why line 13 tax form 1040 page one should be ignored. And I wrote him a letter to explain it too. He took over two weeks to get the package ready. And with my 2008 and 2009 returns being 65 pages or so, it was a thick package for such a small loan.
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