Shopping for a mortgage loan that meets your particular needs is not an easy job. Sources of mortgage loans include savings and loans, banks, mortgage companies, mortgage brokers, and credit unions.

When you apply for a mortgage, the lender will consider your earnings and your existing debt to determine how large a loan to grant you. Researching loan products and comparative shopping of lenders for costs, interest rates, and loan terms, and hopefully going through the process of "pre-qualifying" for a loan before you begin the house hunting is vital.  

 

 

 

For Consumers

To Protect Yourself From Predatory Lenders

Before you begin loan shopping, visit your local non-profit housing counseling center to set up an appointment with a counselor to evaluate your financial situation and to discuss your loan needs.

You can and should also talk with a housing counselor to evaluate the loan offers you are receiving if you are already in the middle of the loan process. Many of the borrowers who receive high cost loans could have qualified for a lower cost loan from a bank.

Ignore high-pressure solicitations, including home visit offers. Before you sign anything, take the time to have an expert - such as a housing counselor or lawyer - look over any purchase agreement, loan offer from a lender or broker, or any other documents.

Don' t agree to or sign anything that doesn't t seem right, even if the seller or lender tells you that "it' s the only way to get the loan through" or "that' s the way it's done. " Look over everything you sign to make sure all your information is correct, including your income, debts, and credit. Do not sign blank loan documents or documents with blank spaces "to be filled out later."

Before closing your loan, get a copy of your loan papers with the final loan terms and conditions so you have enough time to examine them. If anything is dramatically different at closing, don't sign it.

Don' t accept a lender s statement that you have bad credit without reviewing your credit report yourself for mistakes and inaccuracies and having an independent person evaluate your credit report.

Make sure you are comparing apples to apples. Know exactly what debts will and will not be paid and if new payment will include taxes and insurance. You should also understand if the payment being quoted is sufficient to payoff the loan or only goes toward the interest.

Be wary of any lender or broker who encourages you to refinance your first mortgage that' s not what you are looking to do or if they encourage you to add more and more of your other debts into the loan.

Think twice about borrowing more than the value of your house. Some lenders may make loans for more than your house is worth, up to a 125% loan to value. Owing more than your house is worth can prevent you from selling your house or refinancing to a better rate in the future.

Beware of loan terms and conditions that may mean higher costs for you:

• High points and fees: Bank loans usually cost 1- 3% of the loan amount for points and fees to the lender. If you are being charged more, find out why. Then shop around.
  
  
• Single premium credit insurance or debt cancellation agreements: This kind of insurance is very expensive compared to other insurance policies, and paying it up front requires you to pay interest on it as well. Beware.
  
  
• Prepayment Penalty: Many subprime loans include prepayment penalties, which require you to pay thousands of dollars extra if you sell the house or refinance your loan within the first several years of the loan. Make sure you know if the loan you are being offered has a prepayment penalty, how long it is in effect, and how much it will cost. If there is a chance that you will refinance or sell your home during that time, you need a loan without a prepayment penalty.
  
  
• Balloon Payments: Balloon mortgages have the payments structured so that after making all your monthly payments for several years, you still have to make one big "balloon payment" that is almost as much as your original loan amount.
  
  
• Adjustable Rates: Beware of low "teaser" introductory rates on adjustable mortgages because many of these adjustable rate loans only adjust one way - up. If your loan has a fixed initial rate make sure you know when and by how much the interest rate will increase and what your new monthly payments will be. Find out the highest rate your can go to and what the monthly payments would be at that rate. Don t count on a promise that the lender will refinance the loan before your payments increase.
  
  
• Mandatory Arbitration: Some predatory lenders include mandatory arbitration clauses in their home loans. Signing these can mean giving up your right to sue in court if the lender does something that is illegal.

Be Careful with Debt Consolidation Loans. If you are thinking of a debt consolidation loan, be aware that although it may lower your monthly payments in the short term, you may end up paying more in total over time. Also, there is an important difference between most of your bills - such as for credit cards - and mortgage debt. When you consolidate other bills with your mortgage, you increase the risk of losing your home if you can t make the payment.

Watch Out for Property Flipping Scams When Buying a Home. A property flipper buys a house cheap and then sells it to an unsuspecting homebuyer for a price that far exceeds its real value. Too often, the buyer finds out after closing that the home needs major repairs they can t afford and they lose the house in foreclosure.

• Have an independent home inspector make sure the house is in good condition. This should be in addition to the appraisal that the bank orders. While an appraisal estimates the value of your home, a good home inspection will identify needed repairs. Do your own homework to find a good inspector - an inspector recommended by the seller may not be working in your interest.
  
  
• Make sure you have your own Realtor or real estate agent who is working for you.
  
  
• If the seller agreed to make repairs to the home, conduct a final walk-through to make sure the repairs have been completed before the loan closing.

Look Out for Home Improvement Scams. Some home improvement contractors work together with lenders and brokers to take advantage of homeowners who need to make repairs on their homes. They get the homeowner to take out a high- interest, high- fee loan to pay for the work, and then the lender pays the contractor directly. Too often, the work is not done properly or even at all.

• Get several bids from different home improvement contractors. Don t get talked into borrowing more money than you need.
  
  
• Check with the state Attorney General' s office to see if they have received any complaints about the contractor.
  
  
• Don t let a contractor refer you to a specific lender to pay for the work. Shop around with different lenders in order to make sure that you are getting the best possible loan.
  
  
• Make sure any check written for home improvements is not written directly to the contractor. It should be in your name only or written to both you and the contractor, and you should not sign over the money until you are satisfied with the work they have completed.

 

 

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