When it comes to mortgages, it’s important to pay attention to the terms. Each loan will be different and not every loan will be right for every situation. Taking the wrong loan can be worse than not getting approved for a mortgage at all, because it can lead you into a mountain of debt. However, knowing how to spot problem mortgages is the first step in choosing the right loan for your situation.
Be Wary of Competing Lenders
As home prices rise, the lender’s profit margin drops. This means that every lender will be competing for more customers and it also means you’ll likely have your choice of lenders. While this may benefit you in helping you get a good deal, be sure to read the fine print. A lower down payment or a low introductory interest rate may not be worth much if the lender will raise the rates down the road. Find out whether it will be a fixed or variable rate and how you can expect the rates to fluctuate in the future.
Research the Lender’s Reputation
While the government continuously attempts to protect people from predatory lenders, there are still questionable practices in use. For instance, banks that specialize in refinancing may offer you a mortgage with plans to get you to refinance just a few years down the road. This may save you some money the first few years, but, over the course of time, you may actually pay more for your home than you planned.
Get a Second Opinion
Unless you’re a lawyer or a finance professional, chances are you’re going to have difficulty understanding the jargon used in your contract and other paperwork. The best thing to do is to consult a third party, whether it’s another loan officer, an attorney, or an accountant. Ask them to explain the terms of the loan to you and help you calculate your payment schedule for the lifetime of the loan. This will help you avoid agreeing to terms that may be unfair to you.
In general, you should be sure you understand the terms of your loan in full. Even if that means going over the details multiple times, avoid signing off on a loan until you fully understand it. This can help ensure you get the best possible loan terms for your situation, so you can buy your new home with confidence.
