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Common Mortgage-Brokered Real Estate Transaction Issues
The Real Estate Appraisal and Other Third-party Fees:
In regard to third-party fees—defined in the loan broker act as bona fide third-party fees—such as a credit report, real estate appraisal, title insurance, and real property survey, ask for the name and business address of the service provider and a copy of their invoice. In regard to real estate appraisers, ask for the name, license number and the business address of the person doing the appraisal. The Indiana State Board of Real Estate Appraisers (state government) may be reached at telephone number 317-232-7209 if you wish to verify the appraiser's license number and business address. If you pay for the real estate appraisal yourself, get a signed and dated receipt showing the price of the appraisal, the date it was done, the name, business title, and address of the appraiser, and their Indiana real estate appraiser license number. You are entitled to a copy of the appraisal under the federal Equal Credit Opportunity Act (ECOA), if you have paid for it. You have to request the copy in writing from the loan broker. The original real estate appraisal does not have to be provided to you for reuse with another mortgage broker or lender if you decide to take your loan business elsewhere. Most lenders have their own group of real estate appraisers they employ on a regular basis. Lenders are not required by any state or federal law to use the appraiser of your choice.
The real estate appraisal is one of the potential lender's application requirements of you, the proposed borrower. The purpose of the real estate appraisal is to assure the lender that the market value of the property you are proposing to buy or refinance is high enough to cover the dollar amount of the mortgage loan if you default and the lender has to foreclose on the property.
Refusing a Mortgage Loan
If you decide to refuse a mortgage loan that the loan broker offers you, they are entitled under the Indiana loan broker act to collect the actual cost of the bona fide third-party fees of the credit report, real estate appraisal, title insurance, and any real property survey from you, if these services were actually performed. The Act permits the loan broker to collect the actual cost of these third-party fees from you prior to the mortgage closing. You are entitled to written proof (such as a copy of the third-party service provider's invoice) that these fees have been incurred, the identity of the third party service provider, and the actual dollar amount they charged for their services.
Every loan has transaction costs—there is no such thing as a "no-cost" loan". In a "no-out-of-pocket-cost" loan, the mortgage closing costs are added to the principal dollar amount of the mortgage loan. You may not pay the closing costs out of your own pocket at the mortgage closing by check or cash, but the closing costs will be added to the total principal dollar amount of the mortgage you are borrowing. The closing costs will be itemized by the title company clerk on the HUD-1 Settlement Statement you will receive at the mortgage closing. You will be paying these financed closing costs over the total years of your mortgage at the same interest rate as the mortgage principal.
When you apply for a loan through the mortgage broker, be sure to give him copies of your income tax returns, paid-off loan statements, W-2 copies, and other important documents. Do not give the loan broker any original documents. If you decide to take your loan business elsewhere, you do not want the loan broker holding your original documents "hostage" to try and force you to stay with him to finish the loan process. Taking documents hostage is not an acceptable business practice. It is attempted as an intimidation tactic periodically by unscrupulous loan brokers.
Be sure to ask the loan broker or the lender questions if you do not understand the terms of the proposed mortgage loan or their fees. Shop around. You can bargain on some of the terms and fees. You are entitled to copies of all documents that you sign.