Educational Consumer Tips
A mortgage will likely be the largest loan of your lifetime. For most, it can be a unfamiliar process where you must trust the company that you are dealing with to be honest and ethical.
Although the majority of mortgage lenders are trustworthy, the best way to gain peace of mind during this process is to be prepared and ask questions.
First of all, know how much house you can afford. This doesn't mean how much a lender tells you that you can afford. Analyze your budget to find out what you are comfortable paying each month.
Take a look at your credit report. The BBB encourages consumers to frequently review their credit report. This gives you the opportunity to verify the accuracy of what is being reported and clean up any errors prior to beginning the mortgage process. This can save you valuable time. You can obtain a free annual credit report at www.annualcreditreport.com.
Know how much of a down payment you have. The amount put down on a mortgage loan can greatly affect the amount of money you spend over the lifetime of the loan. Explore all your options including borrowing from your 401k or retirement
When you are ready to shop around for a mortgage, keep in mind that you are the customer and have the right to talk to multiple lenders in order to find one that best suits your needs. Be cautious of high-pressure sales tactics. Familiarize yourself with the different types of lenders such as mortgage
bankers, mortgage brokers, savings & loans, etc. Know the advantages of each type and which you feel would be most suitable.
Be sure to keep in mind while shopping for a mortgage not to give multiple lenders permission to pull your credit report. Multiple hits on your credit report can adversely affect your credit rating.
Ask prospective lenders to explain the different types of loans available and carefully analyze the difference between each. Ask about the total cost of the loan including interest rates, points or other fees.
Ask for a Good Faith Estimate of all loan and settlement charges before you agree to the loan and pay any fees. Make sure to find out what fees are refundable should you decide to cancel the loan agreement.
Don't forget to figure in your property taxes. If you are purchasing a brand new home where taxes have not yet been assessed, they can be higher than anticipated. Also keep in mind that during the second year of your mortgage, you will owe taxes for both the first and second year. Be sure to budget accordingly.
Don't be afraid to ask about any charges you don't understand. Also, don't feel pressured into signing any documents until you are completely clear as to what you are signing. You have every right to read each document before you sign it, regardless of how long it takes.
On January 10, 2013, the Consumer Financial Protection Bureau (CFPB) adopted a new rule that will go into effect in January 2014. The new rule will protect consumers from irresponsible mortgage lending by requiring lenders to ensure prospective buyers have the ability to repay their mortgage. The rule also protects borrowers from risky lending practices that contributed to many homeowners ending up in delinquency and foreclosure after the 2008 housing collapse. Under the Ability-to-Repay rule announced, all new mortgages must comply with basic requirements that protect consumers from taking on loans they don’t have the financial means to pay back. As the January 2014 effective date approaches, the CFPB will give consumers information about their new rights under these rules. For more information on the new rule, click here.
For additional information about the Consumer Financial Protection Bureau's rules to strengthen protections for high-cost mortgages, click here.