Fox News reported a banner year for homeownership, due in part to mortgage loan lenders featuring low interest rates. Experts predict 2013 to be a seller’s market, with the buying process becoming increasingly competitive as the year progresses. Buyers should start the mortgage application process three months before starting their home search for the most advantageous position.
Finding a Good Mortgage
Mortgages are loans used to purchase a residence. Many people cannot pay total amounts due for a home in cash, so lenders provide upfront funding and create personalized repayment schedules. Lenders consider consumer credit scores, assets and employment history when determining loan eligibility. Customers with weaker credit or inconsistent employment receive higher loan interest rates or possible application denial.
The entire process can be grueling, but there are things that facilitate the process. CNN Money and Metro News offer the following tips on getting the best mortgage options from potential lenders. Or you may look into our DIY Real Estate and Mortgage Legal Forms for reference.
– Keep consistent credit rates for a three-month period before submitting mortgage applications. Lenders want to see credit scores in the 700s and no large balances from credit card purchases or other loans.
– Ask sellers for a contract extension on that dream home. Another week or so allows for extra negotiation time with potential lenders.
– Get multiple quotes and make sure they include applicable fees. Financial experts recommend contacting a minimum of six lenders including national companies, local credit unions and regular banks.
– Ask about standard lock, or closing periods for similar mortgage loans to utilize all available negotiation time.
– Consider an adjustable rate mortgage (ARM) for nesting periods of less than seven years.
– Take advantage of broker services in certain situations to receive the best rates on atypical loans.
– Offer a big down payment for the best rates. Financial experts recommend between 25 and 40 percent for optimum mortgage rates.
Problems with Shady Lenders and Brokers
Companies still manage to take advantage of potential homebuyers despite Federal Trade Commission (FTC) regulations. In their quest to obtain the American Dream, some customers fall victim to shady and predatory practices. Consumers wind up losing their homes and lining a lender’s pockets.
Customers receive their first good faith estimate indicating potential loan costs. The numbers come up while talking with their second prospective lender. Immediately promises of a better rate start and smooth talking convinces the buyer that lender number two is the best option. Imagine their surprise when closing rolls around and fees almost double due to “unforeseen circumstances”.
Flyers boasting claims including “No Money Down” and “No Credit Required” are a common sight in many neighborhoods. This ploy draws in uneducated or desperate applicants who have no idea they are committing to an interest rate significantly higher than what standard banks charge. In some cases, interest is three of four times higher. Customers run the risk of unwittingly placing personal possessions like a car up for collateral in cases of loan default.
Some companies seem reputable until the closing date arrives. Existing fee amounts change and new ones suddenly appear. An aggressive agent may demand clients purchase additional insurance that increases total monthly payments or recommend balloon payments that result in astronomical lump payments. Higher loan amounts mean the company or broker receives more commission.
Urgency is another frequently used technique that amounts to a subtle form of bullying. Customers receive the bait – an estimate with dream interest rates, etc. Questions regarding subtle changes cause the agent to become hostile and almost nasty. Eventually customers feel they have no choice but to sign a terrible mortgage that generates massive lender profit.
Escaping a Predatory Mortgage
There are a few solutions available to customers who fall victim to predatory loan schemes. Every customer has the right to terminate his or her loan contract within three business days under the Right of Rescission under the Truth in Lending Act. Consumers can vacate loans within three years if lenders do not provide information on the Rescission process at closing or provided an erroneous document. Courts can also make lenders pay substantial fees.
Pursuing legal action in civil court comes down to a matter of state guidelines. Some locations award up to twice the total finance charges assessed by the lender. If either option seems extreme, there is always a third, more textbook method of handling the setback.
Refinance bad loans with a reputable company. This process allows customers to stay in their dwelling and maintain a decent credit rating. Homeowners need at least average credit for the refinancing process, so it helps to research available options before falling defaulting on loan payments.
Buying a home is rewarding and exhausting at the same time. Searching for a mortgage is the most difficult part. A little research aides in avoiding shady mortgage loan lenders.