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California Department of Real Estate: FAQs - Mortgage Loan Brokering in California California Home DRE Home Contact Us What's new About DRE Careers at DRE DRE Records Consumers Escrow Violations eLicensing Examinees Licensees Subdivisions Real Estate Law Regulations Publications Forms FAQs Links Index Department of Real Estate My CA FAQs: Mortgage Loan Brokering in California indicates an item is in Portable Document Format (PDF). You will need Adobe Reader (or an Adobe Acrobat product) to view it. Click on the icon below to download a free copy of Adobe Reader. Click here for information about using Adobe Reader. Provided below are answers to some of the most frequently asked questions regarding licensing and other related issues for those who are interested in some aspect of the mortgage business in California. Questions come from both licensees and non-licensees from other states and California expressing an interest in California licensing requirements to engage in mortgage activity. The following questions and answers are intended to answer many, but by no means all, of these inquiries from the standpoint of the Department of Real Estate requirements. Q . - As a mortgage broker in Kansas (or any other state), my plan is to move to California and pursue this same business. Does California issue mortgage broker licenses and is there any reciprocity in licensing with other states? A . - California does not issue a "mortgage broker" license. A majority of those engaged in mortgage loan brokering do so with a real estate broker license. To the surprise of some, the license that allows the listing and sale of real property (the traditional activities associated with a real estate broker license) is the same license that allows the solicitation of borrowers or lenders, the negotiation of loans secured by real property and the collection of payments on notes secured by real property. For further details concerning the definition of licensed activity, review Business and Professions Code Sections 10130 and 10131. It should be noted there are other licenses that allow mortgage loan brokering under a limited set of circumstances, such as the California finance license and the residential mortgage lending license. For information about these licenses contact the California Department of Corporations. (See addresses at end of pamphlet.) California does not have reciprocity with any other state as far as a real estate license is concerned. Information regarding obtaining either an individual or corporation real estate broker license is explained in Instructions to License Applicants . Q . - As a mortgage broker working outside of California, I occasionally have clients who are moving to California and have asked me to broker a loan for them to be secured by their new home. Although I am not licensed in California, can I broker a loan secured by California real estate? Does California have a rule that allows me to broker a small number of loans in California before I would have to be licensed? A . - No. To broker even one loan in California you need to be licensed here. However, California Real Estate Law does allow a California broker to share a commission with a broker from another state. Therefore, it may be possible to co-broker the loan with a licensed California broker. Q . - I am a licensed California real estate broker and I specialize in the sale of real property, primarily residential homes. I would like to branch out and engage in mortgage brokering. What additional licensing must be obtained? A . - As a licensed real estate broker, you may engage in mortgage brokering without any additional license. A real estate broker may engage in a variety of real estate related activities including residential home sales, mortgage brokerage, and property management, among others. You may, however, wish to consult with the Department of Housing and Urban Development to determine their rules regarding real estate sales and the arranging of FHA loans. Additionally, if you represent a buyer or seller in a real estate transaction, and will also be compensated for obtaining the loan for the buyer, Commissioners Regulation 2904 requires you to disclose, to all parties in the transaction, the form, amount, and source of the compensation received or expected for the loan. Go to Top of Page Q . - Another broker told me that the kind and volume of mortgage brokerage activity I engage in makes me a "threshold" broker. What does that mean? A . - Determining whether a broker meets the "threshold" criteria takes a careful reading of Section 10232 of the Business and Professions Code. Generally, the criteria is met by brokers who arrange, sell, or service "private investor" or "private lender" loans, sometimes referred to as "hard money" loans. The "threshold" criteria is satisfied by negotiating 10 or more loans or sales of notes or real property sales contracts in any 12-month period in an aggregate amount of more than $1,000,000 (all of which were funded or purchased by private investors or small pension trusts). A broker can also meet the "threshold" criteria by servicing loans on behalf of investors or on behalf of obligors. If the aggregate amount of payments collected is $250,000 in any 12-month period, the "threshold" criteria has been met. Included in the $250,000 aggregate is any amount the broker collects on loan payoffs. Brokers who collect payments on behalf of obligors are typically those who collect payments from homeowners on a bi-weekly mortgage payment plan. Within 30 days of meeting the "threshold" criteria, a broker is required to submit a Threshold Notification (RE 853)   to the Department. The notification form is available at any DRE office or may be downloaded from the DRE Web site at http://www.dre.ca.gov . Q . - Once Ive submitted a Threshold Notification (RE 853) to the Department advising of my "threshold status," what happens next? A . - After receipt of the "threshold" notification, the Department sends the broker information and necessary documents for required quarterly and annual reporting to the Department and adds the broker to the "threshold" list. The Department then tracks and records each required report from the broker. Q . - What kind of reporting requirements are necessary if I satisfy the "threshold" criteria? A . - "Threshold" brokers make quarterly and annual reports to the Department on their trust fund bank accounts and an annual report on their business activities. Except for the annual trust fund report (which is done by a public accountant per instructions from the Department), the Department provides the necessary forms for the quarterly trust account and annual business activity reports. These are provided to the broker upon receipt of the "threshold" notification form. Go to Top of Page Q . - I am a broker who arranges loans for, and sells notes to, private investors and small pension trusts. May I also borrow personally from any of these investors? A . - Yes. However, these "self-dealing" loans are highly scrutinized and require notice to DRE before the transaction is completed. Before a broker, or salesperson acting on behalf of a broker, solicits and accepts funds for the direct or indirect use or benefit of the broker, the broker must submit to DRE a true copy of the Lender/Purchaser Disclosure Statement prior to obtaining the signature of the investor/purchaser. The Lender/Purchaser Disclosure Statement must be accompanied by the brokers statement that the submittal is being made pursuant to Business and Professions Code Section 10231.2. While the broker need not wait for DREs approval of the transaction, the Lender/Purchaser Disclosure Statement must be presented to the investor/lender not less than 24 hours prior to that person becoming obligated to make the loan or purchase the note. The Lender/Purchaser Disclosure Statement must also give a detailed explanation of the intended use of the funds, including an explanation of the nature and extent of the benefits to be derived directly or indirectly by the broker. It is very important to understand that "self-dealing" is not permitted in multiple investor (fractionalized) transactions except under the limited circumstances set forth in Business and Professions Code Section 10229(d)(1). Q . - When engaged in mortgage loan brokering, are there any special trust fund record keeping requirements? A . - Yes. In addition to the trust fund record keeping requirements of the Business and Professions Code that apply to all real estate brokers, mortgage brokers must also maintain quarterly trust fund reconciliations of their trust account on special forms available from the Department. These forms are completed, maintained in the brokers office, and made available upon request to a Department representative for review. The quarterly reconciliation forms are, Trust Fund Status Report ( RE 855)   and Trust Fund Bank Account Reconciliation (RE 856)   . Q . - Are there specific disclosure statements that must be used by a real estate broker in the mortgage business? A . - Every real estate broker who negotiates a loan to be secured directly or collaterally by a lien on real property shall, within three business days after receipt of a completed written loan application or before the borrower becomes obligated on the note, whichever is earlier, cause to be delivered to the borrower a statement in writing (borrowers disclosure statement), containing all the salient features of the loan to be negotiated by the broker. The statement must be personally signed by the borrower and by the real estate broker negotiating the loan or by a real estate licensee acting for the broker in negotiating the loan. When so executed, an exact copy thereof shall be delivered to the borrower at the time of its execution. A federal Good Faith Estimate (GFE) may also be required in a loan transaction under the Real Estate Settlement Procedures Act (RESPA). The GFE may contain some similar disclosures but it cannot, without modification pursuant to Business and Professions Code Section 10240(c), be a substitute for the disclosure statement required by state law. The state disclosure statement is called the Mortgage Loan Disclosure Statement (MLDS). If a GFE is necessary in the loan transaction, the Department has available a Mortgage Loan Disclosure Statement/Good Faith Estimate (MLDS/GFE). The MLDS/GFE satisfies the state disclosure requirement and the federal GFE requirement. In addition to a disclosure statement for the borrower in a loan transaction, there are lender disclosure statements that a broker may be required to use. Unlike the MLDS or MLDS/GFE which must be provided to a borrower in virtually every loan transaction, the disclosure statement for a lender/investor is limited to private and small pension trust lenders/investors. Lenders/investors such as banks, savings and loan associations, credit unions, and a variety of others need not receive the lender/investor disclosure statement which is called the Lender/Purchaser Disclosure Statement (LPDS). Every real estate broker, in making a solicitation to a private investor and in negotiating with that investor to make a loan secured by real property or to purchase a real property sales contract or a note secured by a deed of trust, is required to deliver to the investor solicited the applicable completed statement as early as practicable before he or she becomes obligated to purchase or make the loan. The statement shall be signed by the prospective lender or purchaser and by the real estate broker, or by a real estate salesperson licensed to the broker, on the brokers behalf. When so executed, an exact copy shall be given to the prospective lender or purchaser. The Department has available three versions of the LPDS, depending on the type of transaction. There are statements for loan origination, sale of an existing note and one for a collateralized loan. Please note that collateralized loans are not permitted in multi-lender transactions. Go to Top of Page Q . - Are there specific rules or laws that pertain to advertising by real estate brokers engaging in mortgage activity? A . - Yes. The law states, in part, that: "No real estate licensee shall knowingly advertise, print, display, publish, distribute, telecast or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed, televised or broadcast, in any manner any statement or representation with regard to the rates, terms, or conditions for making, purchasing or negotiating loans or real property sales contracts which is false, misleading or deceptive." To assist licensees in complying with the law, Commissioners Regulation 2848 sets forth sixteen (16) subsections of "donts" of mortgage loan advertising. Q . - What about those who advertise from outside of California via the Internet? A . - Advertising real estate services on the Internet, including mortgage loan services, is considered solicitation of a California resident when read by a resident of California. Either the out-of-state advertiser on the Internet must be properly licensed in California or the ad must contain a disclaimer to the effect that the ad is not valid in California. The Department has prepared information regarding Internet advertising which is available from any Department district office and is partially reproduced here: Internet Advertising These guidelines have been prepared by the California Department of Real Estate to assist real estate brokers and businesses that are not licensed in California who are considering advertising real estate services on the Internet. If you are not properly licensed in California, you may not solicit California residents. To do so would be considered conducting activity for which a real estate license is required. Because the Internet can be read by anyone in any location, advertising your services on the Internet would be considered soliciting a California resident when read by a resident of this state. If you conduct activity which requires a California real estate license, but you are not a California licensee, you could be subject to administrative sanction such as a Desist and Refrain Order. If you are now conducting, or plan to conduct, the above activity in California, you need to apply for a real estate broker license . If you dont plan to become licensed in California, you should make sure your Internet advertising contains a disclaimer such as the following: "Notice: This offer is valid only in State 1, State 2..." (states wherein you are licensed or authorized to do business). If you are licensed in numerous states, you may want the disclaimer to read: "Notice: This offer is not valid in State 1, State 2..." (states in which you are not licensed or authorized to do business). Q . - Are there some advertising violations that are more often encountered than others? Yes. Some of the more common advertising violations are: Using terms in a comparative or superlative degree to describe any aspect of the business or any terms applicable to loans negotiated by the broker, without setting forth in the ad additional information to render the superlative or comparative terms unambiguous in the context in which they are used. For example, a broker who advertises "FAST LOANS" must also set forth in the ad how "fast is fast" (e.g. "most loans closed in 90 days from application"). A broker who advertises "LOW RATES" should also set forth in the ad what rates are available so that the term "LOW" is actually defined. It should be noted that the Department may require the broker to substantiate any claims made in an ad or require additional qualifiers in the ad to ensure the ad is not misleading to the public. Advertising a specific payment for a loan without including in the ad an equally prominent disclosure of the loans interest rate, APR, principal amount, number, amount and period of payments scheduled to maturity and the balance due at maturity if not a fully amortized loan. Advertising an interest rate without disclosing whether the rate is for first mortgages, junior loans or both. Advertising a loan program with special qualifying restrictions or special requirements without setting forth those requirements or restrictions in the ad. Advertising an interest rate without an equally prominent disclosure of the APR. It should be noted that if a rate appears in an ad without an APR, a disclosure of "APR NOT CALCULATED" is not sufficient. An APR must be disclosed if a rate appears in the ad. In addition to the above examples, which are based on specific subsections of the regulation, phrases and words used in advertising can be misleading in themselves. "No Cost" loans and "No Fee" loans are such words. All real property secured loans have certain inherent costs, such as title insurance, escrow, appraisal, recording fees, etc. These services are bought and paid for by the borrower in all loan transactions. In the cases where a broker arranges a premium priced loan where a lender rebate is used to pay for these services, the services are still performed and the costs incurred. The borrower pays the costs of the services via a higher interest rate than would be available if the borrower paid for the services out-of-pocket. In effect, the borrower finances the closing costs over the entire life of the loan. Although there may be no out-of-pocket costs to the borrower, clearly there are fees and costs involved, contrary to the claims in these ads. Go to Top of Page Q . - I understand something called the "multi-lender rule" was transferred from the California Department of Corporations to the Department of Real Estate. What is this and how may I as a mortgage broker be affected? A . - The Department of Corporations enforces the state securities laws which require that any security in an issuer transaction be qualified prior to sale with certain exemptions. Such an exemption was the "multi-lender rule" (Section 260.105.30) which permitted the sale of interests in notes secured by real property to not more than 10 persons as defined. This "rule" was legislatively transferred by Assembly Bill 754 (Kuykendall) to the Department of Real Estate as Section 10229 of the Business and Professions Code. Any real estate broker (mortgage broker) involved in loan transactions secured by real property where the investors number 10 or less, but more than one, known as fractionalized notes, must notify the Department of Real Estate of the engagement in "multi-lender" activity. Any broker who arranges, sells or services such fractionalized notes must file a Multi-Lender Transaction Notice (RE 860)   with the Department within 30 days of the first such transaction. Quarterly, CPA-prepared reports must be filed by any broker who acts as the servicing agent for such notes where the payments due during any period of three consecutive months exceeds $125,000, or the number of persons entitled to payments exceeds 120. The quarterly reports are in addition to the "threshold reports" previously discussed. Section 10229 is very detailed and should be carefully reviewed before becoming involved in multi-lender transactions. Q . - As a mortgage broker, can I collect fees from a borrower to cover certain costs in a loan transaction when a loan application is taken, such as a fee to cover my expenses in processing the application or fees for credit report and appraisal? A . - Fees that are collected by the broker from a borrower prior to the services being rendered are defined as "advance fees." To preclude the inappropriate use of such fees, a broker can only collect "advance fees" if the contract or agreement to do so has been submitted to and approved by the Department in advance of use. This agreement specifically tells a borrower how the "advance fees" are to be used by the broker. The broker must also maintain all "advance fees" in a trust fund bank account and they must be expended only on behalf of the borrower. In addition, whatever other materials the broker might use in collecting "advance fees" must also be submitted to the Department, prior to use, for review and approval. Credit report and appraisal fees, although technically "advance fees" are not considered as such and may be collected without adhering to the prescribed advance fee procedures. These fees are invariably passed to third parties performing the services. They must, however, be maintained in a trust fund bank account and expended appropriately. A broker may not profit from the collection of credit report and appraisal fees. If actual costs are less than collected, the excess must be refunded to the borrower. Q . - I am not licensed as a real estate broker or real estate salesperson and I am only going to assist private parties who wish to sell their notes (secured by real property) for cash to another party (investor), perhaps in another state. Is a real estate license required if I conduct this activity in California? A . - The activity described, so-called note brokering , requires a real estate license if performed in California. This includes the solicitation of California note owners, whether in person, by mail, telephone, or other means of communication. One of the definitions of a real estate broker is: "...a person who, for a compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others: (e) Sells or offers to sell, buys or offers to buy, or exchanges or offers to exchange a real property sales contract, or a promissory note secured directly or collaterally by a lien on real property or on a business opportunity, and performs services for the holders thereof." There are companies engaged in the discounted purchase of certain mortgages, primarily those carried back by residential sellers and secured by the transferred real property. The companies hold seminars to recruit people to solicit and negotiate the sale of these mortgages. Seminar attendees are informed that they do not need a real estate license to engage in this activity. In California, this is wrong because the activity fits the definition quoted above. Go to Top of Page Q . - Is a real estate licensee in the mortgage business required to show any specific disclosure of his or her license status in an ad? A . - All California real estate licensees, when acting as such, must disclose licensure in advertising. For a broker engaged in mortgage loan activity, the following also applies: "No real estate licensee shall place an advertisement disseminated primarily in this state for a loan unless there is disclosed within the printed text of that advertisement, or the oral text in the case of a radio or television advertisement, the license under which the loan would be made or arranged." A real estate broker must include one of the following disclosures in any mortgage loan advertising: "Real estate broker, California Department of Real Estate" or "California Department of Real Estate, real estate broker." The words "California" and "Department" may be abbreviated as "CA", "CAL" or "CALIF" and "DEPT." In addition to the license and licensing department identifiers, mortgage brokers must include their 8 digit broker license identification number in the ad. In the borrower and lender/purchaser disclosure statements (MLDS and LPDS), a broker must disclose the license identification number and the information telephone number established by the Department that a consumer can call to inquire about the license status of the broker. Q . - Has there been a change in the retention period that brokers are required to keep records? A . - The general rule is that brokers are required to keep records for a three-year period. However, pursuant to Business and Professions Code 10229(e)(1), the investor qualification statement required on a multi-lender loan has a four-year retention period requirement. Also, self-dealing statements, pursuant to Business and Professions Code 10231.2(b), must be retained for four years by the broker. Real estate brokers are not only affected by laws and regulations enforced by the Department of Real Estate, but also many others at both the state and federal level. The foregoing questions and answers are based on the California Business and Professions Code and the Regulations of the Real Estate Commissioner. Real estate brokers should be familiar with the other laws affecting their business. In this regard, they may receive assistance from other enforcement agencies, private legal advisors, and/or professional trade organizations. Office Locations Department of Real Estate Sacramento District Office 2201 Broadway P.O. Box 187000 (mailing address) Sacramento, CA 95818-7000 (916) 227-0770 (Mortgage Loan Section) Fresno District Office 2550 Mariposa Mall, Suite 3070 Fresno, CA 93721-2273 (559) 445-5009 Los Angeles District Office 320 W. 4th Street, Suite 350 Los Angeles, CA 90013-1105 (213) 620-2072 Oakland District Office 1515 Clay Street, Suite 702 Oakland, CA 94612-1462 (510) 622-2552 San Diego District Office 1350 Front Street, Suite 3064 San Diego, CA 92101-3687 (619) 525-4192 Department of Corporations: Sacramento 1515 K Street, Suite 200 Sacramento, CA 95817 (866) ASK-CORP - (866) 275-2677 US Department of Housing and Urban Development (HUD) Regional Office: San Francisco P.O. Box 36003 450 Golden Gate Avenue San Francisco, CA 94102-3448 (415) 436-6550 Federal Trade Commission (FTC) Regional Offices: San Francisco 901 Market Street, #570 San Francisco, CA 94103 (415) 356-5270 Los Angeles 10877 Wilshire Blvd., #700 Los Angeles, CA 90024 (310) 824-4343 Back to Top of Page Conditions of Use | Privacy Policy | Tech Problems 2003 State of California This page last modified on Tuesday, August 31, 2004

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The Real Estate Library - An educational site offering, articles, tips andinformational reports for realtors, buyers and sellers! REAL ESTATE - FIND IT HERE! The Real Estate Library contains essential resources for buyers, sellers, home owners, real estate professionals, and anyone investing or seeking to connect with the world of real estate. REAL ESTATE WEB SITE DESIGN Are you a real estate agent with website questions? Ask our expert. Click Here PURE GOLD AWARD It has been said that "Success leaves clues" . Nowhere is that more apparent than on the Internet. Click Here to apply! The Nations MOST ENDORSED Real Estate School Get your CA, TX, VA, or WA Real Estate License from an ACCREDITED & NATIONALLY ENDORSED school. 110% Money Back Promise! Quick & Convenient programs!! VA MORTGAGE CENTER Need assistance getting through the Loan process? Need some direction on where to find assistance? Apply for a VA Loan AMERICA'S FAVORITE ONLINE REAL ESTATE SCHOOL Get your Real Estate License in Florida, Georgia, Illinois, Virginia, Alabama, Missouri, Washington, Iowa or Kansas. Fast, Easy and Enjoyable. Nationally Approved by ARELLO (The Association of Real Estate Law Officials). Click Here to Go to Real Estate School BRIO REALTY: REAL ESTATE LISTINGS View photos of over 30,000 MLS listings in California, Washington, Virginia, and Maryland. Foreclosureworld.net Recommended pages: Mortgage Lenders by State Real Estate Agents by State Home Buying & Home Selling Tools Add Your Link Don't forget to bookmark this page! Quick links to popular pages: Commercial Real Estate Lenders Florida Real Estate Agents Utah Real Estate Agents Real Estate Investment Vacation Rentals by State (New!) Index | Advertising Info | Add Your Link | Contact RELibrary.com RELibrary.com Click To Apply For This Award For Your Site

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Mortgage Rates, Home Loans, Home Equity Loans, Debt Consolidation and Bad Credit Loans - HomeLoanCenter.com Mortgage Refinance Home Equity Loans Home Purchase Credit Concerns Debt Consolidation Check Loan Status Loan Calculators Rate Quote Rate Watch FAQs Find the Right Loan 5 Reasons to Refinance Home Buying Tips Mortgage Terms Glossary Get Loan Approval in Minutes. Qualifying is Quick & Easy. -- Choose Your Loan Type -- Refinance Purchase Home Equity Loan -- Choose Your State -- AK AL AR AZ CA CO CT DC DE FL GA HI IA ID IL IN KS KY LA MA MD ME MI MN MO MS MT NC ND NE NH NJ NM NV NY OH OK OR PA RI SC SD TN TX UT VA VT WA WI WV WY Our Mortgage Calculators will help you find the right loan. How Much Can You Afford? How Much Equity is in Your Home? How Much Could You Save? What Will Your Monthly Payment Be? Hsieh Joins Expert Panel on CNBC Anthony Hsieh appears on a special edition of CNBC Primetime with a panel of residential real estate industry experts. Anthony Hsieh, on CNN's Open House Hsieh appeared as a guest speaker on CNN's Open House to discuss good housing debt versus bad housing debt. Click below for a Personalized Payment and Rate. Option ARM 1.000% 1.106% 1 Month ARM 2.000% 2.116% 3/1 Libor ARM 5.000% 5.149% 15 Year Fixed 5.125% 5.384% 30 Year Fixed 5.625% 5.782% 30 Yr Fixed Jumbo 6.125% 6.289% Assumptions Site Map | About Us | Contact Us | Business Hours | Careers | Privacy Policy | Our Guarantees | Licensing | Legal Information Loan Payment Calculator | Mortgage Refinance | Home Equity Loan | Home Purchase | Adjustable Rate Mortgages | Second Mortgage Tools & Resources | Mortgage Interest Rates | Home Loan | Equity Loan | Debt Consolidation © 2005 Home Loan Center, Inc. All rights reserved. Loan programs are offered by Home Loan Center, Inc.

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Looking for the Best Mortgage ESPAÑOL Shopping around for a home loan or mortgage will help you to get the best financing deal. A mortgage--whether it’s a home purchase, a refinancing, or a home equity loan--is a product, just like a car, so the price and terms may be negotiable. You’ll want to compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating may save you thousands of dollars. Skip to content Obtain information from several lenders Obtain all important cost information Obtain the best deal that you can Remember: Shop, compare, negotiate Fair lending is required by law Credit problems? Glossary Mortgage shopping worksheet For more information Obtain Information from Several Lenders Home loans are available from several types of lenders-- thrift institutions , commercial banks, mortgage companies, and credit unions. Different lenders may quote you different prices, so you should contact several lenders to make sure you’re getting the best price. You can also get a home loan through a mortgage broker . Brokers arrange transactions rather than lending money directly; in other words, they find a lender for you. A broker’s access to several lenders can mean a wider selection of loan products and terms from which you can choose. Brokers will generally contact several lenders regarding your application, but they are not obligated to find the best deal for you unless they have contracted with you to act as your agent. Consequently, you should consider contacting more than one broker, just as you should with banks or thrift institutions. Whether you are dealing with a lender or a broker may not always be clear. Some financial institutions operate as both lenders and brokers. And most brokers’ advertisements do not use the word "broker." Therefore, be sure to ask whether a broker is involved. This information is important because brokers are usually paid a fee for their services that may be separate from and in addition to the lender’s origination or other fees. A broker’s compensation may be in the form of "points" paid at closing or as an add-on to your interest rate , or both. You should ask each broker you work with how he or she will be compensated so that you can compare the different fees. Be prepared to negotiate with the brokers as well as the lenders. Obtain All Important Cost Information Be sure to get information about mortgages from several lenders or brokers. Know how much of a down payment you can afford, and find out all the costs involved in the loan. Knowing just the amount of the monthly payment or the interest rate is not enough. Ask for information about the same loan amount, loan term, and type of loan so that you can compare the information. The following information is important to get from each lender and broker: Rates Ask each lender and broker for a list of its current mortgage interest rates and whether the rates being quoted are the lowest for that day or week. Ask whether the rate is fixed or adjustable . Keep in mind that when interest rates for adjustable-rate loans go up, generally so does the monthly payment. If the rate quoted is for an adjustable-rate loan, ask how your rate and loan payment will vary, including whether your loan payment will be reduced when rates go down. Ask about the loan’s annual percentage rate (APR) . The APR takes into account not only the interest rate but also points, broker fees, and certain other credit charges that you may be required to pay, expressed as a yearly rate. Points Points are fees paid to the lender or broker for the loan and are often linked to the interest rate; usually the more points you pay, the lower the rate. Check your local newspaper for information about rates and points currently being offered. Ask for points to be quoted to you as a dollar amount--rather than just as the number of points--so that you will actually know how much you will have to pay. Fees A home loan often involves many fees, such as loan origination or underwriting fees , broker fees, and transaction, settlement, and closing costs . Every lender or broker should be able to give you an estimate of its fees. Many of these fees are negotiable. Some fees are paid when you apply for a loan (such as application and appraisal fees), and others are paid at closing. In some cases, you can borrow the money needed to pay these fees, but doing so will increase your loan amount and total costs. "No cost" loans are sometimes available, but they usually involve higher rates. Ask what each fee includes. Several items may be lumped into one fee. Ask for an explanation of any fee you do not understand. Some common fees associated with a home loan closing are listed on the Mortgage Shopping Worksheet in this brochure. Down Payments and Private Mortgage Insurance Some lenders require 20 percent of the home’s purchase price as a down payment. However, many lenders now offer loans that require less than 20 percent down--sometimes as little as 5 percent on conventional loans . If a 20 percent down payment is not made, lenders usually require the home buyer to purchase private mortgage insurance (PMI) to protect the lender in case the home buyer fails to pay. When government-assisted programs such as FHA (Federal Housing Administration), VA (Veterans Administration), or Rural Development Services are available, the down payment requirements may be substantially smaller. Ask about the lender’s requirements for a down payment, including what you need to do to verify that funds for your down payment are available. Ask your lender about special programs it may offer. If PMI is required for your loan, Ask what the total cost of the insurance will be. Ask how much your monthly payment will be when including the PMI premium. Ask how long you will be required to carry PMI. Obtain the Best Deal That You Can Once you know what each lender has to offer, negotiate for the best deal that you can. On any given day, lenders and brokers may offer different prices for the same loan terms to different consumers, even if those consumers have the same loan qualifications. The most likely reason for this difference in price is that loan officers and brokers are often allowed to keep some or all of this difference as extra compensation. Generally, the difference between the lowest available price for a loan product and any higher price that the borrower agrees to pay is an overage . When overages occur, they are built into the prices quoted to consumers. They can occur in both fixed and variable-rate loans and can be in the form of points, fees, or the interest rate. Whether quoted to you by a loan officer or a broker, the price of any loan may contain overages. Have the lender or broker write down all the costs associated with the loan. Then ask if the lender or broker will waive or reduce one or more of its fees or agree to a lower rate or fewer points. You’ll want to make sure that the lender or broker is not agreeing to lower one fee while raising another or to lower the rate while raising points. There’s no harm in asking lenders or brokers if they can give better terms than the original ones they quoted or than those you have found elsewhere. Once you are satisfied with the terms you have negotiated, you may want to obtain a written lock-in from the lender or broker. The lock-in should include the rate that you have agreed upon, the period the lock-in lasts, and the number of points to be paid. A fee may be charged for locking in the loan rate. This fee may be refundable at closing. Lock-ins can protect you from rate increases while your loan is being processed; if rates fall, however, you could end up with a less favorable rate. Should that happen, try to negotiate a compromise with the lender or broker. Remember: Shop, Compare, Negotiate When buying a home, remember to shop around, to compare costs and terms, and to negotiate for the best deal. Your local newspaper and the Internet are good places to start shopping for a loan. You can usually find information both on interest rates and on points for several lenders. Since rates and points can change daily, you’ll want to check your newspaper often when shopping for a home loan. But the newspaper does not list the fees, so be sure to ask the lenders about them. The Mortgage Shopping Worksheet that follows may also help you. Take it with you when you speak to each lender or broker and write down the information you obtain. Don’t be afraid to make lenders and brokers compete with each other for your business by letting them know that you are shopping for the best deal. Fair Lending Is Required by Law The Equal Credit Opportunity Act prohibits lenders from discriminating against credit applicants in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, age, whether all or part of the applicant’s income comes from a public assistance program, or whether the applicant has in good faith exercised a right under the Consumer Credit Protection Act. The Fair Housing Act prohibits discrimination in residential real estate transactions on the basis of race, color, religion, sex, handicap, familial status, or national origin. Under these laws, a consumer cannot be refused a loan based on these characteristics nor be charged more for a loan or offered less favorable terms based on such characteristics. Credit Problems? Still Shop, Compare, and Negotiate Don’t assume that minor credit problems or difficulties stemming from unique circumstances, such as illness or temporary loss of income, will limit your loan choices to only high-cost lenders.If your credit report contains negative information that is accurate, but there are good reasons for trusting you to repay a loan, be sure to explain your situation to the lender or broker. If your credit problems cannot be explained, you will probably have to pay more than borrowers who have good credit histories. But don’t assume that the only way to get credit is to pay a high price. Ask how your past credit history affects the price of your loan and what you would need to do to get a better price. Take the time to shop around and negotiate the best deal that you can. Whether you have credit problems or not, it’s a good idea to review your credit report for accuracy and completeness before you apply for a loan. To order a copy of your credit report, contact: Equifax: (800) 685-1111 TransUnion: (800) 888-4213 Experian: (888) 397-3742 Glossary Adjustable-rate loans , also known as variable-rate loans, usually offer a lower initial interest rate than fixed-rate loans. The interest rate fluctuates over the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates rise, generally so do your loan payments; and when interest rates fall, your monthly payments may be lowered. Annual percentage rate (APR) is the cost of credit expressed as a yearly rate. The APR includes the interest rate, points, broker fees, and certain other credit charges that the borrower is required to pay. Conventional loans are mortgage loans other than those insured or guaranteed by a government agency such as the FHA (Federal Housing Administration), the VA (Veterans Administration), or the Rural Development Services (formerly know as Farmers Home Administration, or FmHA). Escrow is the holding of money or documents by a neutral third party prior to closing. It can also be an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance. Fixed-rate loans generally have repayment terms of 15, 20, or 30 years. Both the interest rate and the monthly payments (for principal and interest) stay the same during the life of the loan. The interest rate is the cost of borrowing money expressed as a percentage rate. Interest rates can change because of market conditions. Loan origination fees are fees charged by the lender for processing the loan and are often expressed as a percentage of the loan amount. Lock-in refers to a written agreement guaranteeing a home buyer a specific interest rate on a home loan provided that the loan is closed within a certain period of time, such as 60 or 90 days. Often the agreement also specifies the number of points to be paid at closing. A mortgage is a document signed by a borrower when a home loan is made that gives the lender a right to take possession of the property if the borrower fails to pay off the loan. Overages are the difference between the lowest available price and any higher price that the home buyer agrees to pay for the loan. Loan officers and brokers are often allowed to keep some or all of this difference as extra compensation. Points are fees paid to the lender for the loan. One point equals 1 percent of the loan amount. Points are usually paid in cash at closing. In some cases, the money needed to pay points can be borrowed, but doing so will increase the loan amount and the total costs. Private mortgage insurance (PMI) protects the lender against a loss if a borrower defaults on the loan. It is usually required for loans in which the down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater than 80 percent of the appraised value. Thrift institution is a general term for savings banks and savings and loan associations. Transaction, settlement, or closing costs may include application fees; title examination, abstract of title, title insurance, and property survey fees; fees for preparing deeds, mortgages, and settlement documents; attorneys’ fees; recording fees; and notary, appraisal, and credit report fees. Under the Real Estate Settlement Procedures Act, the borrower receives a good faith estimate of closing costs at the time of application or within three days of application. The good faith estimate lists each expected cost either as an amount or a range. Mortgage Shopping Worksheet File for Printing Worksheet (12KB PDF) Lender 1 Lender 2 Name of Lender: ___ ___ Name of Contact: ___ ___ Date of Contact: ___ ___ Mortgage Amount: ___ ___ mortgage 1 mortgage 2 mortgage 1 mortgage 2 Basic Information on the Loans Type of Mortgage: fixed rate, adjustable rate, conventional, FHA, other? If adjustable, see below ___ ___ ___ ___ Minimum down payment required ___ ___ ___ ___ Loan term (length of loan) ___ ___ ___ ___ Contract interest rate ___ ___ ___ ___ Annual percentage rate (APR) ___ ___ ___ ___ Points (may be called loan discount points) ___ ___ ___ ___ Monthly Private Mortgage Insurance (PMI) premiums ___ ___ ___ ___ How long must you keep PMI? ___ ___ ___ ___ Estimated monthly escrow for taxes and hazard insurance ___ ___ ___ ___ Estimated monthly payment (Principal, Interest, Taxes, Insurance, PMI) ___ ___ ___ ___ Fees Different institutions may have different names for somefees and may charge different fees. We have listed some typical fees you may see on loan documents. Application fee or Loan processing fee ___ ___ ___ ___ Origination fee or Underwriting fee ___ ___ ___ ___ Lender fee or Funding fee ___ ___ ___ ___ Appraisal fee ___ ___ ___ ___ Attorney fees ___ ___ ___ ___ Document preparation and recording fees ___ ___ ___ ___ Broker fees (may be quoted as points, origination fees, or interest rate add-on) ___ ___ ___ ___ Credit report fee ___ ___ ___ ___ Other fees ___ ___ ___ ___ Other Costs at Closing/Settlement Title search/Title insurance For lender ___ ___ ___ ___ For you ___ ___ ___ ___ Estimated prepaid amounts for interest, taxes, hazard insurance, payments to escrow ___ ___ ___ ___ State and local taxes, stamp taxes, transfer taxes ___ ___ ___ ___ Flood determination ___ ___ ___ ___ Prepaid Private Mortgage Insurance (PMI) ___ ___ ___ ___ Surveys and home inspections ___ ___ ___ ___ Total Fees and Other Closing/Settlement Cost Estimates ___ ___ ___ ___ Lender 1 Lender 2 Name of Lender: mortgage 1 mortgage 2 mortgage 1 mortgage 2 Other Questions and Considerations about the Loan Are any of the fees or costs waivable? ___ ___ ___ ___ Prepayment penalties Is there a prepayment penalty? ___ ___ ___ ___ If so, how much is it? ___ ___ ___ ___ How long does the penalty period last? (for example, 3 years? 5 years?) ___ ___ ___ ___ Are extra principal payments allowed? ___ ___ ___ ___ Lock-ins Is the lock-in agreement in writing? ___ ___ ___ ___ Is there a fee to lock-in? ___ ___ ___ ___ When does the lock-in occur—at application, approval, or another time? ___ ___ ___ ___ How long will the lock-in last? ___ ___ ___ ___ If the rate drops before closing, can you lock-in at a lower rate? ___ ___ ___ ___ If the loan is an adjustable rate mortgage: What is the initial rate? ___ ___ ___ ___ What is the maximum the rate could be next year? ___ ___ ___ ___ What are the rate and payment caps each year and over the life of the loan? ___ ___ ___ ___ What is the frequency of rate change and of any changes to the monthly payment? ___ ___ ___ ___ What is the index that the lender will use? ___ ___ ___ ___ What margin will the lender add to the index? ___ ___ ___ ___ Credit life insurance Does the monthly amount quoted to you include a charge for credit life insurance? ___ ___ ___ ___ If so, does the lender require credit life insurance as a condition of the loan? ___ ___ ___ ___ How much does the credit life insurance cost? ___ ___ ___ ___ How much lower would your monthly payment be without the credit life insurance? ___ ___ ___ ___ If the lender does not require credit life insurance, and you still want to buy it, what rates can you get from other insurance providers? ___ ___ ___ ___ This brochure was prepared by the following agencies: Department of Housing and Urban Development Department of Justice Department of the Treasury Federal Deposit Insurance Corporation Federal Housing Finance Board Federal Reserve Board Federal Trade Commission National Credit Union Administration Office of Federal Housing Enterprise Oversight Office of the Comptroller of the Currency Office of Thrift Supervision These agencies (except the Department of the Treasury) enforce compliance with laws that prohibit discrimination in lending. If you feel that you have been discriminated against in the home financing process, you may want to contact one of the agencies listed above about your rights under these laws. For more information on home lending issues, visit ( http://www.consumer.gov ), write to the Federal Citizen Information Center, Pueblo, CO 81009 or visit the Center’s Web site at ( http://www.pueblo.gsa.gov ). The following brochures are available from the Center: A Consumer’s Guide to Mortgage Lock-Ins A Consumer’s Guide to Mortgage Refinancing Buying Your Home: Settlement Costs and Helpful Information Consumer Handbook on Adjustable Rate Mortgages Guide to Single Family Home Mortgage Insurance Home Buyer’s Vocabulary Home Mortgages: Understanding the Process and Your Rights to Fair Lending How to Buy a Home with a Low Down Payment How to Dispute Credit Report Errors The HUD Home Buying Guide What You Should Know About Home Equity Lines of Credit Home | Consumer information | Publications | Brochures | Accessibility | Contact Us Last update: January 22, 2004