DEAR BOB; Is it correct that money received from refinancing a mortgage on a house or income property is tax free? Morris M., Rockville.

DEAR MORRIS: Yes. Loans are not taxable.

DEAR BOB: We are selling our home and would like to take back the mortgage for the buyer. Do you think it is necessary for us to get a credit report on the buyer? The agent says it isn't necessary as the house is the security for our mortgage. Bruno C., Silver Spring.

DEAR BRUNO: Your agent is correct. But as a prudent lender, you should check out the buyer's credit history, just as banks and savings associations do before making mortgage loans.

It's true that your house is the security for the mortgage. If the buyer defaults, you foreclose and get the house back. But most lenders don't want to repossess property so they investigate the borrower to minimize the chances of a foreclosure. However, if you're truly profit minded, you'll pray that the borrower doesn't make his or her payments so you can foreclose and resell the house for another profit.

DEAR BOB: Recently you said that a big drawback of FHA and VA home loans was that the buyer couldn't pay the loan fee the lender requires.When we applied for a VA mortgage last week, the banker said we would have to pay a "loan processing fee" of 1 percent. Is this legal? Carver M., Rockville.

DEAR CARVER: The lender can charge a VA or FHA borrower a "loan-processing fee" that does not exceed 1 percent of the amount borrowed. This fee is in addition to the loan points charged to the seller. In many areas, FHA and VA lenders now require sellers to pay loan fees as high as 6 percent, in addition to the 1 percent loan-processing fee paid by the buyer. The whole area of FHA and VA loan fees is long overdue for reform, but don't expect any quick action by the bureaucrats.