Get the mortgage
that's right for you
Most lenders value their customers and want to give them the best
possible loan options. If you need to borrow money and your credit
is good—or can be improved with extra effort—you may qualify for a
loan with reasonable interest rates. Just make sure that the loan is
for only the amount you need, is from a
source you can trust, and has a monthly loan payment you can afford.
Most lenders are trustworthy—but unfortunately, some lenders are
not. They sometimes direct borrowers away from loans with more
affordable interest rates. Instead, they offer loans that carry very
high interest rates, questionable fees, and unnecessary charges.
These practices are considered predatory lending.
A predatory lender may be a large company with a name you know. Or
it may be a small company or a loan broker you’ve never heard of.
But predatory lenders have many of the same traits. For example, they:
■ offer loans based solely on the equity in a home, not on the
borrower’s ability to
repay the loan
■ charge unusually high interest rates for
loans
■ add excessive points to a loan without
lowering the interest rate
■ include excessive fees
■ tack on unnecessary costs, such as
prepaid single-premium credit life insurance
With or without these extra charges, you may find it difficult or
even impossible to repay the loan. If you fall behind in your
payments, more charges may be added. Or the lender may suggest that
you refinance the loan to lower your monthly payment. But the unpaid
payments may be added to the new loan amount, costing you even more
money over time. Then the loan becomes even more difficult to repay.
If you can’t make the payments, you could lose the items you
purchased or used to secure the loan.
Most often, the victims of predatory lenders are low- and
moderate-income persons, minorities, and the elderly. But
anyone—including you—can be misled by a predatory lender. You may
want to consolidate credit-card debt or buy your first home. If you
already own your own home, you may want to make repairs to it. Your
reasons for a loan may be good, but if you agree to an unfair loan,
you could lose your home!
How can you get the best loan?
■ Shop around for the best loan for your situation. Ask in places
where you feel
comfortable, such as a bank, credit union, or a local
nonprofit housing or consumer
credit-counseling agency. To confirm
current interest rates, look in the business or
real estate section
of your local newspaper. Call more than one bank, savings and
loan,
or mortgage company.
■ Borrow only the amount you need and can afford to repay. You may
be encouraged to
borrow more than you need. So before deciding on a
loan, be clear about how you will
use the money and how you plan to
pay it back. If you are already in debt and having
problems making
your payments, you probably shouldn’t borrow more money.
Instead,
try to negotiate a payment plan with your current lenders.
■ Understand exactly how much the entire loan will cost. Review the
complete payment
schedule. Be sure to find out how much you will
have paid in total when the final
payment is made. Above all, beware
of loans with one large “balloon” payment at the
end. If you have
difficulty making the final payment when it is due, you may have to
refinance the loan to make the balloon payment. If your original
loan does not
guarantee a new loan with reasonable rates, the
refinanced loan can cost you even
more money because of additional
points and fees.
■ Make sure that the loan fees are reasonable. In most cases, loan
fees should not
exceed 5 percent of the loan amount unless you are
paying more for a lower interest
rate. For example, if the loan
amount is $70,000, the loan fees should not exceed
$3,500 ($70,000 x
.05 = $3,500). However, there are some situations that may cause
the
loan fees to be higher. If you’re not sure, ask a trusted advisor
such as a nonprofit
housing counselor.
■ Read every word in a loan document, and check everything for
accuracy. Don’t accept
loan terms just
because the lender says they are “standard.” Make sure you
understand the reason for—and effect of—every loan term before you
sign.
■ Do not be pressured into signing for a loan you can’t afford. But
if you do get
pressured into signing for a loan you can’t afford,
act fast. You have a legal right to
cancel, or “rescind,” a loan
contract when your home is used as security for a home-
equity loan.
But you must generally cancel the loan in writing within three
business
days of signing the loan documents.
■ Never sign an agreement that you don’t completely understand. And
don’t take a
lender’s word that an agreement is “standard.” If the
agreement seems unreasonable,
or uses terms that are unfamiliar to
you, ask for a complete copy of the loan
agreement. Get a second
opinion from someone you trust before you sign
the loan
agreement. Bring it to your advisor or local nonprofit
housing or consumer-credit
counselor to review it.
You can view the entire guide by going to:
http://www.homebuyingguide.com
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