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posted: 9/7/2012 5:00 AM

Feds expected to require lenders to offer 'no-fee' mortgages soon

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Buyers and refinancers could save thousands of dollars in cash closing costs, but would have to pay a higher interest rate, under a new federal plan that is likely to take effect early next year.

Q. I want to buy my first home, and a co-worker told me that a new federal law requires banks to offer buyers the option of getting a mortgage that carries no upfront fees or points. This would be great for me because I don't have a lot of extra cash to meet closing costs, but the three banks that I called said they do not offer them and that they have never heard of such a law. What gives?

A. There's no such law that demands lenders to offer borrowers a no-points, no-fees option. But there will be, probably by early next year.

The proposed rule was announced by the federal government's Consumer Financial Protection Bureau about two weeks ago. It's part of the agency's efforts to make the home-loan process easier for borrowers to understand: Banks would have to do a better job of explaining all of an applicant's loan options, including the proposed no-fees mortgages, so buyers could choose the one "that they believe is right for them."

The traditional mortgage and its related upfront fees wouldn't disappear. Borrowers still would have the right to pay some fees to get a lower interest rate on their long-term loan, but also would have the option of choosing a no-fees loan, provided they were willing to roll those costs into the loan, accept a higher rate and the higher monthly payments it would entail.

A handful of lenders already offer no-fees loans, but the new plan would require that virtually all lenders make them available. The bureau is now collecting comments from banking institutions and consumer groups about the proposal and will then work out any concerns, with a goal toward implementing the new rules early next year.

Q. I made a full-price offer for a home that I want to buy, but the seller turned it down and made a counteroffer to sell it to me for almost $5,000 more than his original asking price. Is the seller legally required to sell the property to me because I agreed to pay the full price that appeared in the newspaper and the Realtors' Multiple Listing Service? Can I sue for "false advertising" or something like that?

A. You could sue, but it is doubtful you would win.

Home sellers are not required to sell their property -- even if a prospective buyer meets or exceeds the advertised asking price -- unless both parties involved in the transaction have signed a written sales agreement.

Although you apparently made a written offer to meet the owner's full asking price, he never signed a purchase agreement and so has no obligation to sell the home to you.

Q. We signed an agreement to purchase a home two weeks ago, and followed your advice to have it checked out by a home inspector. The inspector's report said the home is in fine shape, but that the gas water heater is in violation of local building codes because it is inside the bathroom and must be moved to another part of the property. Who cares where the water heater is? And if we have to move it, who has to pay: us or the seller?

A. Some builders, and many do-it-yourself remodelers, have put water heaters in the bathrooms of their homes so the tub and sink can quickly fill with hot water rather than having to first run through several feet of pipe. But many municipalities have since banned the practice for safety reasons.

A gas water heater in a bathroom poses several potential dangers. Obviously, if the heater exploded while someone was in the room, the user could get seriously burned or even die. But an equally dangerous risk involves the gas itself: A slow leak or ventilation malfunction could contaminate the air or slowly suck out the oxygen in the room, putting anyone who might be relaxing in the tub into a deep sleep from which they would never awake.

Such dangers are the primary reason why most experts agree that the best place for a gas heater is outside the house rather than in it.

The seller isn't legally obligated to relocate the appliance, but you certainly have the right to ask him to do so. It's usually not a particularly difficult or expensive job to undertake, and the seller may be willing to accommodate your request in order to keep the sale from falling apart.

Real estate trivia: Housing markets across the nation are just beginning to get a powerful long-term boost as the first of 85 million "Echo Boomers" -- those born between 1982 and 1995 -- turn 30 years old, the prime home-buying age.

• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers, P.O. Box 4405, Culver City, CA 90231-4405.

2012, Cowles Syndicate Inc.

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