November 1, 2011
There’s a page on the official site for the Department of Housing and Urban Development that describes an FHA loan applicant’s rights. “Attention Borrower,” the page begins, “This may be the largest and most important loan you get during your lifetime. You should be aware of certain rights before you enter into any loan agreement.”
There’s a list of things a mortgage borrower has the right to expect from any home loan experience, including the right to shop around for the best loan and the right to be fully informed as to the total cost of your home loan. But what do these rights mean? Let’s examine a couple of them and define their terms. From the official site, “You have the RIGHT to shop for the best loan for you and compare the charges of different mortgage brokers and lenders.”
This FHA loan applicant’s right seems fairly basic, but for some house hunters, there can be a lot of pressure involved in buying a home. What happens if you sit down with a lender, investing a good deal of time with one bank, only to learn about a better deal somewhere else? No matter how much time has been put into a transaction, unless you have actually committed to a loan in writing, the buyer is free to walk away from one bank and accept the terms of another.
If you’ve signed on the dotted line, that’s another issue altogether, but for those who have not yet committed, it’s important not to feel obligated to continue with a deal that isn’t as favorable to you as one offered somewhere else.
Another borrower’s right–to be fully informed about the total cost of your loan to include interest rates, points and fees. That means the borrower should have all costs explained to them–anything you do not fully understand must be discussed until you do understand it. A good example–some first time home buyers don’t understand the difference between an appraisal fee and a home inspection. The buyer pays for both, but one is voluntary, the other is not.
When your lender explains the difference, you should walk away knowing that the appraisal fee is critical to establishing the FHA loan amount and cannot be avoided, while the inspection is critical for the borrower who should know if there are any issues with the property. The inspection is voluntary but is an expense that should not be avoided.
Another reason for this right is to protect the borrower from predatory lending practices that involve fees for services not actually rendered or services that the bank should be paying for such as legal counsel for the lender or inflated costs related to credit report requests. Being fully informed about fees means a lender can’t hide such inflated costs–they are available for review and can be challenged if charged in excess of what’s allowed by FHA loan rules.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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