Mortgage Application Process And Upfront Fees
The mortgage application process starts when you get a real estate purchase contract or if you are a homeowner, you give the mortgage loan originator the heads up to start the refinance mortgage loan application process. The mortgage loan originator will send out the official mortgage loan application and disclosures and pull credit. The mortgage loan originator will also run the mortgage loan application file through Automated Underwriting System for an automated approval. Once the mortgage loan borrower provides the signed mortgage loan application and provides mortgage loan documents requested such as two years tax returns, two years W-2s, two months bank statements, current pay check stubs, and other documents needed, the mortgage loan application gets processed by a mortgage loan processor so it can get submitted to a mortgage loan underwriter. The mortgage underwriter is the person that decides whether a loan applicant gets approved or not and eventually issues a clear to close. A clear to close is when the mortgage lender is ready to fund the mortgage loan.
How Do Mortgage Lenders Get Paid?
Mortgage lenders get paid when the mortgage loan closes and gets funded. Mortgage brokers are brokers who make a commission via yield spread premium from the actual mortgage lender who funds the mortgage loan. Mortgage brokers who own their own shop have costs and fees processing a mortgage loan application such as credit report fees that is charged by the credit reporting company, DU fees that costs everytime you run an automated approval, postage, and office overhead. If mortgage loans do not close, the mortgage broker does not make any money. Mortgage brokers do a lot of work during the mortgage loan application and approval process. Owners of mortgage brokerage companies are normally small mom and pop shops and they have overheads such as office rent, utitlities, office supplies, employees, and mortgage software fees. Many times mortgage loans do not close every month. Mortgage brokers are not allowed to charge anything upfront or ask for any retainers like attorneys or other service providers. There are strict rules and regulations with charging any mortgage loan applicant upfront.
If I Decide On A Mortgage Lender, Am I Committed?
Once you decide to choose a mortgage lender, whether it is a mortgage broker or mortgage banker, you can cancel your mortgage loan transaction at any time. A mortgage loan originator cannot ask you for any upfront fees. If a mortgage loan originator asks you for a deposit, credit report fee, application fee, or any other fee, you need to go elsewhere. The only upfront fee that you will come out of pocket prior to closing is an appraisal fee which normally runs between $350 and $500. You can order the appraisal after you get a mortgage loan approval.
Even though the mortgage company does a lot of work such as processing and underwriting your mortgage loan application and has costs associated with the mortgage application, you are not liable for a single cent. Mortgage companies are different than law firms, accounting firms, and other consulting firms where they cannot charge you a retainer nor can they charge you with their time on working on your mortgage loan application. Mortgage companies are extremely regulated and the way they get paid is when they close on the mortgage loan. You, as a public consumer, can cancel your mortgage loan at anytime during the mortgage application and mortgage approval process until the minute you close on your mortgage loan. If you are uncomfortable dealing with your mortgage loan originator, you can fire him or her and hire someone else during the mortgage loan application and approval process. As far for the appraisal, you may lose the appraisal fee if you decide to change mortgage loan programs. For example, if you have a FHA appraisal and decide to move your mortgage loan application to a different mortgage lender, you can do a FHA appraisal transfer and do not have to pay for another appraisal. If you have a FHA appraisal from one mortgage lender and decide to go to a different mortgage lender but decide to go with a conventional loan, then you would need to pay for another appraisal; a conventional appraisal. The FHA appraisal will be null and void.
Stay away from any mortgage loan originator that asks you for upfront fees and for an application or credit report fee upfront.