Although the majority of today’s mortgage lenders are honest and reputable, there are still some unscrupulous individuals out there who will do whatever they can to separate you from your money. Even among good institutions, the loan that’s offered may not always be the best one for you; and though legal, it could actually be downright terrible. Here are fifteen warning signs � in no particular order � that you may be headed for a bad deal:
1. The lender pushes the advantages of an ‘option’ mortgage – To make the monthly payments fit within your budget, you can choose to pay based on a 15- or 30-year amortization schedule, an interest-only amount, or a small percentage of the interest due. By nature, many choose the smallest payment amount, which results in negative amortization of their mortgage (the principal balance actually goes up each month). Added to this is the fact that most of these loans have an adjustable rate, which means that you could eventually find yourself having to pay double or even triple your initial monthly payments.
2. You’re offered an extremely low-interest-rate loan – Rates are rising. If you’re offered, for example, a 1.25% mortgage that allows you to borrow a lot of money for a relatively small monthly payment, know assuredly that it has an adjustable rate. And just as in our first example, you’re very likely to be looking at negative amortization with impending ‘payment shock’ just over the near horizon when the rate adjusts.
3. You’re encouraged to embellish or falsify your loan application – Some lenders may tell you “its okay” or “it’ll make you look better financially” and that the information won’t be scrutinized too closely. Don’t bet on it. Remember, their commission is tied to your getting the loan, so the only person to trust with your best interest is you.
4. You’re encouraged to borrow more than you need or accept payment terms which make you uncomfortable – Again, you must look after you own financial well-being. For the lender, a bigger loan means a bigger commission. It’s you who will have to make the monthly payments.
5. The lender doesn’t give you the required disclosures – The Good Faith Estimate, Truth-in-Lending form, Right of Rescission form and other disclosures must be provided to you at the time of application or shortly thereafter. All lenders know this; it’s the law and it’s not likely to be forgotten. If you don’t receive them, be very wary.
6. You’re asked to sign a blank form – The lender promises to fill it in later in order to ‘save time’ (or for any other reason). Don’t do it! Nor should you sign any document containing incorrect information. If you’ve signed it, you’ve agreed to it.
7. You see any references to a prepayment penalty – Lenders use this clause to keep you locked-into a mortgage. These days, there are countless loans available without this penalty; you shouldn’t have to accept it. In other words, keep shopping.
8. There’s a balloon payment – This acts as a de-facto requirement to refinance your mortgage after a certain period of time which, of course, means more fees to be paid to the lender. If you must accept a balloon, make sure that it’s at least five years down the road.
9. The lender requires you to sign a contract for the payment of an origination fee even if the loan doesn’t close – If the transaction falls through, you could still be on the hook for thousands of dollars. Besides, it removes the incentive for the lender to actually help in getting the loan to closing.
10. You encounter high-pressure sales tactics – If the lender states that their offer is only good for a very limited amount of time, be careful. Ask yourself why someone with a legitimately good offer would push you to accept it immediately. If they don’t want you to be able to think about it, something could be wrong.
11. If it sounds too good to be true, it likely is – Deals that offer terms which are way below those of other lenders in your local market, or promise services that can’t possibly be provided, are probably not telling you everything that you need to know. Read the ‘fine print’.
12. Your questions aren’t answered to your satisfaction – Disreputable lenders will count on your unfamiliarity with the mortgage lending process as well as your trust in them to give you the best deal for your circumstances. If they don�t answer your questions clearly and concisely, there could be something that they would rather you didn’t understand.
13. At the closing table you discover substantially different terms or a completely different loan product than what you agreed to – The lender is counting on you to sign because of the time and money you may have already invested in the process. You have the right to walk away.
14. You see an arbitration clause – Agreeing to settle any disputes with the lender by arbitration actually strips you of many of your legal rights as a homeowner, providing the lender with an opportunity to take advantage of you. Never agree to this.
15. The lender promises you everything that you ask for, but fails to put it in writing – Insist upon everything that you negotiated in you deal to be put into writing, on company letterhead, and signed by a decision-maker. This especially applies to any lock-in agreement for interest rates. If they won’t do this, move on; under the law, verbal agreements are no agreements at all.