Q: My husband and I are in the process of talking to a company about refinancing our home so we can consolidate some bills and make some home improvements. The company has indicated that we would be approved for the loan based on the preliminary information we’ve provided about our income and credit score.

But they informed us we have to pay the company $375 upfront for an appraiser who they select. Also, we haven’t seen anything in writing regarding the terms and conditions of the refinance.

How do we go about confirming if this mortgage lender is credible? Can you recommend another refinance lender that you know is credible?

A: During the recent credit expansion (that would be the one that preceded the credit crisis that we’re now suffering through), thousands of folks figured out that the way to earn a quick buck was to pay a licensing fee and hang out a mortgage lender shingle.

Which was fine, as long as they knew what they were doing and weren’t scam artists. Unfortunately, millions of dollars have been lost to mortgage fraud over the past five years, with more bad news to come, I’m afraid.

To avoid becoming part of those statistics, you’re wise to do a thorough search of your lender before forking over any money. I always recommend that when searching for a credible lender, you should talk to at least a handful of different kinds of companies, including a credit union (if you belong to one or can join one), a well-regarded local mortgage brokerage company (the agent who sold you the house should be able to give you a list of top mortgage brokers the company works with), and a local or big national bank (like Bank of America or Chase) to see what else is being offered. You should also speak with a local savings and loan.

You can do some due diligence on these companies at the Better Business Bureau (bbbonline.org) and contact the state to make sure the company you choose is not only licensed to do business in the state but has had no complaints made against it.

Mortgage Lender May Be In The News

One other thing I like to do when researching companies is to go to a news search engine (like Google.com/news) and type the company’s name into the search box. You should also find out the name of the owner or president of the lending company and type that name in as well. This should bring up any news reports concerning the company, or any forum threads where the company is discussed. If you read these links carefully, you shouldn’t miss much.

As far as the upfront fee goes, $375 for an appraisal sounds a bit high, but depending on where you’re located and how pricey your property is and whether it includes the costs for the credit report, it’s not too far out of the box. And, it’s normal to be asked to pay this fee upfront. The lender always chooses the appraiser, not the homeowner.

But you should receive documentation from the lender indicating the type of loan you have applied for as well as other information about the loan process at the time you deliver the fee or before you deliver the fee. It would not be unreasonable for you to ask for this documentation now to determine whether the lender’s fees and costs are reasonable and to understand the terms of the loan you’re applying for. The lender, in turn, could tell you that he or she can’t process the loan until the fee is paid. Still, you should delay the process until you understand what you are getting into with this lender.

One important thing you should consider:  before you start the refinance process, make sure your house will appraise out in value. If it won’t, due to local foreclosures or declines in property value, you’d be better off waiting to refinance.

You should talk to a local agent (or the agent that sold you the property) to see what homes in the area have been selling for and to find out what your home is realistically worth. If your home has dropped down too far in value relative to the mortgage you carry, you may find it quite difficult to refinance.

Nov. 26, 2008.