Over the past couple of days, we’ve discussed the warning signs, as well as some common problems associated with “predatory lending”. When you’re shopping for a low-cost loan, it’s extremely important to know the right questions to ask of any lender, so that you can choose the loan that best suits your needs. Working with a REALTOR® like myself will arm you with the knowledge to protect you and your family and get you into the home of your dreams.
Of course you want to find the lowest mortgage rate possible and get the best deal. However, it’s also important to work with a lender who is ethical and who will work with your best interests in mind, rather than his or her own.
Ask these important questions:
- What is my credit score? Can I have a copy of my credit report?
- What is the best interest rate today? Do I qualify?
- Is the loan’s interest rate fixed or adjustable?
- What is the term (length) of the loan?
- What are the total loan fees?
- What is the total monthly payment? Does this include property taxes and insurance? If not, how much will I need each month for taxes and insurance?
- Is there an application fee? If so, what is it, and how much is refundable if I don’t qualify?
- Are there any prepayment penalties? If so, what are they and how long do they last?
If the loan is an adjustable rate mortgage (ARM), ask:
- What is the initial rate?
- How long will that rate stay in effect?
- How is the adjusted interest rate determined? (Generally, a specified amount-the “margin”-is added to a current published rate-the “index.”)
- How often can the rate change?
- How much can the rate go up each year and over the life of the loan? What is the maximum monthly payment you could be required to pay? Would you be able to afford it?
- Does the loan set a minimum interest rate?
- Do the monthly payments gradually decrease the amount you owe even if interest rates increase? (With some loans, the amount you still owe can increase rather than decrease each month-called “negative amortization.”)
- Does the interest rate increase if your payments are late?
- Could you qualify for a loan with the maximum interest rate permitted under the mortgage? If not, do you anticipate earning more in the future so you will be able to afford the higher payment?
- Can the adjustable rate mortgage loan be converted (changed) to a fixed rate without refinancing into a new loan? Is there a charge to convert?
Other ways home buyers can protect themselves from predatory lenders:
- Check out lenders with the Better Business Bureau, government websites, or other consumer groups. How long has the lender been in business? Have consumers filed many complaints? Does the lender belong to a trade association with ethics requirements for its members?
- Refuse to participate in transactions that may be fraudulent.
- Share predatory lending “horror” stories with regulators, other consumers, REALTORS®, counseling groups, housing professionals, and the media.
- Make contracts subject to the homebuyer receiving approval from a lender for a fair and affordable loan.
- Avoid unnecessary contract extensions that could cause the lender’s loan commitment to lapse.
- Get educated on the value of your home by asking your REALTOR® for a comparative market analysis.
- Review the HUD-1 closing statement before closing. Upon request, home buyers have the right to see this information 24 hours before the loan closing.
- Report possible violations to appropriate federal, state and local officials.
Melissa DelGaudio is a REALTOR®, an e-Pro and an expert in Real Estate Sales in Annapolis, Anne Arundel County and the Chesapeake Bay Region of Maryland.
