Primary marketLender Under No Obligation To Return Fees
Q. We recently made an application to refinance our home with a local mortgage company. We paid the application fee. Rates have gone up, and our circumstances have changed. We no longer want to refinance. We told the company to stop processing our application. Is there any hope of getting our application fee back?
A: I seriously doubt that the lender will voluntarily return your application fee.
While I generally am the first to criticize many lending practices -- especially those involving predatory loans -- in this case my sympathies are with your lender.
You paid an application fee. It probably was in the amount of $360. Three hundred dollars went to obtain -- and pay for -- an appraisal of your property. The balance was to pay for a credit report and the preliminary processing of your loan.
Lenders are currently desperately trying to meet the unusually high demand for low interest loans. As we all know, up until a couple of weeks ago, mortgage interest rates were at an all time -- historic -- low. As a result, many homeowners wanted to refinance to take advantage of these low rates. And to add to this frenzy, real estate sales were booming.
As a result, lenders have been extremely busy. We have been reading recently that since interest rates have spiked up, many lenders have been unable to honor the interest rates they initially promised consumers. Indeed, this is happening even where there is a lock-in contract between the lender and the potential borrower.
As a result, most reliable lenders will start the loan process immediately. There are a number of steps which a lender must generally take in order to satisfy itself -- or the ultimate lender if you are only going through a mortgage broker.
Among the many things the lender must do are:
Obtain an appraisal of the property. Obviously, if your house is only worth $250,000, the lender will not be willing -- or even able -- to lend you more than the value of the house. Most lenders will insist on at least a five percent down payment before they commit to the loan. If you are refinancing your current property, you will have to have some equity -- usually 15 or 20 percent -- in your house in order to convince the lender to approve your loan. Appraisers -- like lenders -- have been extremely busy also. Thus, in order to meet your deadline, as soon as you make your loan application the lender will immediately arrange for your house to be appraised.
Send you certain legal documents required by law. When you apply for a loan, the lender must promptly send you a good faith estimate. This document spells out estimates of what the finance (or refinance) process will cost you, including such items as whether points will be charged, closing costs, and government recording and transfer taxes.
Confirm that you are who you say you are. The lender will obtain a credit report, will confirm your employment and your income.
All this takes time -- and costs the lender time and money.
Now, you have decided to cancel the loan. Why should the lender refund your application fee? They have incurred costs, and have used their employees to start the processing. It would be unfair for you to ask for a refund under the circumstances.
This is not to say that the lender will not voluntarily give back your money. Some lenders, for promotional, public relations purposes, will be willing to give you a refund. Indeed, some lenders may even be willing to share the appraisal and the credit report with you, although they may charge you an additional fee for this service.
The bottom line: you have made an application and through no fault of the lender, you have decided not to go through with the process. The lender is not legally obligated to return any of your application fee.