Going through the mortgage approval process hasn’t been easy these last few years, due to lender tightening and underwriting scrutiny. Aside from requiring mounds of documentation, large down payments and sterling credit scores, conforming lenders now want more of the buyer’s money.

Even though interest rates are low, the borrower’s cost of financing has increased recently due to new Fannie Mae and Freddie Mac add-ons to cover the cost of perceived risk factors.

For example, well-qualified buyers with credit scores above 800 and a 20 percent cash down payment are now charged an extra 1/4 percent of the loan amount. So if you’re applying for a $500,000 mortgage, you’ll be charged an extra $1,250 at closing. The extra 1/4 percent is waived if the borrower puts 25 percent cash down.

The extra fee is higher for buyers with lower credit scores, lower cash downs and other perceived risks like an interest-only loan.

On April 1, the Dodd-Frank bill regarding mortgage compliance requirements will take effect. Part of Dodd-Frank deals with how loan originators (mortgage brokers or loan agents) are compensated.

Dodd-Frank prohibits mortgage originators from basing their loan origination fee on the interest rate or terms of the loan. They cannot steer borrowers to a loan with a higher interest rate in order to collect a higher fee, unless they can prove that this was done in the client’s best interest.

Loan originators can still base their fee (called points) on the loan amount. However, under Dodd-Frank loan originators can’t charge the buyer points and collect an origination fee from the lender (called rebate financing). The lending industry is still working on compliance requirements, and the April 1 start date could be delayed.

Although the intent of the legislation is to protect consumers from being overcharged, there could be complications for buyers trying to get approved for a mortgage in a timely fashion. Most buyers don’t know when they make an offer if they want a loan with points or a no-point loan with a higher interest rate. Dodd-Frank could make it more difficult to move from one loan product to another.

HOUSE-HUNTING TIP: In addition to checking into add-on fees and how Dodd-Frank might affect your ability to switch loan products mid-stream, buyers should find out who their loan originator uses for appraisals. In most cases, mortgage approval is dependent on the lender’s underwriter accepting an appraisal of the property that will secure the loan. Appraisals that come in lower than the price the buyers have agreed to pay can cause a transaction to collapse.

Due to changes in Fannie Mae home mortgage appraisal guidelines last year, loan originators are no longer permitted to select the appraiser. They are also prohibited from having any direct contact with the appraiser during the course of the appraisal process. Many mortgage lenders have used third-party appraisal companies to comply with this guideline.

This has in some cases resulted in unsatisfactory appraisals when inexperienced, out-of-area appraisers who don’t know the local market are hired to do the job. The third-party companies are often can be located out of state and they retain a portion of the appraiser’s fee. Many good appraisers won’t work for these companies.

Local appraisal services have sprung up that provide realistic appraisals from knowledgeable local appraisers. Some lenders and mortgage bankers who weren’t satisfied with the quality of the appraisal they received from third-party appraisal companies have set up their own group of local appraisers.

THE CLOSING: An employee from the lender, who is not involved in loan origination, selects the appraiser.

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