Avoid Scams: Work Only with Approved FHA Mortgage Lenders

Posted by  on May 09, 2010

If you want the best mortgage rates on an FHA loan, make sure you deal with an FHA-approved lender. FHA's guidelines prohibit its approved lenders from overcharging you and making loans that you can't afford. Violating those principles is what recently got four lenders banned from making FHA loans forever.

With increased FHA enforcement, FHA-approved lenders are on notice that they have to adhere to guidelines designed to protect consumers. Knowing what your rights are and using an approved lender for your mortgage can help you avoid unscrupulous lenders.

What Are Allowable Fees Under FHA?

For all forward (non-reverse) mortgages, FHA lenders are required to stick to the following guidelines:

  • Origination fee of 1%.
  • Third-party fees for things like credit reports, inspections, and appraisals cannot be marked up but must simply pass through the lender to the provider.
  • All fees must be "customary and reasonable."
  • You cannot be charged a tax service fee.
  • You can't be charged more for a smaller loan than another customer is for a larger loan. Tiered pricing rules prohibit this practice.
  • They can't charge you more than other borrowers just because they think they can get away with it. A lender's customary lending charges may not vary by more than two discount points within a geographic area. In addition, any variation within two points must be based on actual variations in fees or costs to the lender to make the loan. Overages, charging borrowers more than required to originate the loan, which generates extra commissions, and yield spread premiums (YSPs), which involve brokers getting rebates from lenders for originating the loan, fall under tiered pricing rules as well.
  • Sellers can contribute up to 6% of the sales price, although there is talk of changing this to 3%

Want Protection? Use an FHA-Approved Lender

To assure yourself of getting the best mortgage rates and fair mortgage pricing, use an FHA-approved lender for an FHA home loan. While non-approved brokers are allowed to help you find an FHA mortgage and charge you for the service (they can't be compensated by the FHA lender), only an approved FHA lender can do the following:

  • Take your information and fill out the mortgage application
  • Collect financial information (tax returns, bank statements) and other related documents that are part of the application process
  • Order verifications of employment and deposits
  • Verify mortgage and other loans
  • Order appraisals or inspections
  • Provide disclosures (truth in lending, good faith estimate and others)
  • Maintain regular contact with the borrower, real estate agents, and lender between application and closin
  • Request legal documents
  • Determine if the property is in a flood zone

Anyone performing the above-listed services must be FHA approved. If not, the only service the lender can provide in conjunction with securing an FHA loan is provide counseling. When comparing current mortgage rates, ask about FHA approval and verify it with HUD.


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