Here are two more (in our series of 10) things your Lender Won't Tell You…
6. "We're in Cahoots With Your Real Estate Broker."

When shopping for a product, it's always best to get a recommendation, right? That depends on who's doing the recommending. A real estate agent who directs you to his or her favorite lender is not necessarily offering you the best deal. In fact, there's a chance the lender paid your broker a fee for the referral — a practice that is illegal.

In a handful of states, such as California and Minnesota, real estate brokers can negotiate mortgage loans. Depending on how well this area is regulated in your state, this could be cause for worry. Is the loan offered going to be the best deal you could get? Peter G. Miller, a former agent and author of The Mortgage Hunter (HarperCollins, $13.50), raises another concern for the buyer. "The second issue is, will my confidential financial information be transmitted to the seller? And will that give the seller a negotiating advantage?" He points out that the real estate broker is often obligated to get the seller the best possible price for the property. If the broker knows your financial background, that could prove very useful to the seller.   One way to avoid this pitfall is to hire your own agent, one that will be representing you as a buyer's agent, and preferably one that will act as an Exclusive Buyer's Agent.  In other words, an agent that never lists property for sale, but only represents buyers.

Other types of lending partnerships are cropping up around the country. For instance, computerized loan originators, which allow borrowers to scan selected lenders' deals on PCs, are up and running in many real estate offices. The U.S. Department of Housing and Urban Development is currently trying to revise its regulations in this area to address issues like disclosure of the relationship between the real estate broker and the lender. The aim is to ensure that consumers can benefit from this kind of system, but are protected from any possible abuse. In the meantime, you don't necessarily want to avoid these offers. They may be the best deals around. But "may be" are the operative words.
 
7. "Once You Buy Mortgage Insurance, Good Luck Canceling It."

You need to buy mortgage insurance because you can afford only 15% of your down payment, but your lender assures you it's no big deal. Once your equity grows to 20%, he says, you can bag the insurance payments. Good decision? Nope.

Lenders make it sound easy to get rid of your mortgage insurance, but when that time comes, they often balk. "It's not true that the borrower can just stop paying," says Linda Washing, a Manager of Housing Programs at Consumer Credit Counseling Services Southwest and a former loan officer. "It's the lender's prerogative."

That can be expensive. On a mortgage on a $200,000 home, with 15% down, a buyer's mortgage insurance will cost about $43 a month, or $516 a year. With just 5% down, the cost goes up to $120 a month, which is almost three times as much, according to GE Capital Mortgage Insurance. Depending on which insurer you go with, it can cost even more. Some require an additional fee upfront — on top of the monthly payment — of as much as 1% of your loan if you put only 5% down. Since your lender typically chooses your insurer, this is probably going to be beyond your control as well.

The key is to understand the terms of your mortgage insurance obligations before you close your loan. Get your lender to explain what conditions you have to fulfill before you can stop paying for insurance. Some lenders simply require an appraisal to prove you've paid down 20% of the home's value.

Next time, a look the final 3 items in our list of 10…
 

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Today, a look at 2 more of the Things Your Lender Won't Tell You.

2. "A Slightly Higher Rate for You Means a Big Paycheck for Me."

Getting you a loan with the lowest possible interest rate is not necessarily in your lender's best interest. Rather, he probably wants you to take the highest rate that you can afford. That's because on top of their regular commission — usually 1% of the loan — lenders can earn an "overage" of another 1% to 2% if they sell you a loan that is more expensive than the best available deal.

Sometimes they mark up the rate by one point; other times, it's just half apoint. In any case, it adds up. One Fairfield, Conn., couple has to pay an extra $1,000 every year on their $230,000 mortgage because their loan officer sold them a 30-year loan at 9.5% — higher than the best rate that day. The reason: For charging the higher rate, the broker reaped a 1% fee.

 
3. "Don't Count on Your Rate Lock When Rates Are Rising."

Even though you've locked in the interest rate on your new loan for 60 days, don't count on getting the rate when your application is approved. Sometimes lenders will actually hold up your application if it means you'll have to pay a higher rate. In 1993, the Federal Trade Commission charged Lomas Mortgage USA, one of the nation's largest lenders, with falsely promising borrowers that it would unconditionally lock in the mortgage rate and discount points for 60 days. In fact, in many instances Lomas levied higher rates and more points within the 60-day period, the Commission charged. The Dallas lender settled with the FTC in July, 1993, and agreed to pay $300,000 in so-called "consumer redress."

"It's the lender who has control over how quickly the paperwork gets done," notes Michelle Meier, a lawyer with the Washington activist group Consumers Union. "And there are always all kinds of reasons why that locked-in rate is unavailable by the time they get to closing."

"It's the lender who has control over how quickly the paperwork gets done, and there are always reasons why the rate isn't available by then."

As interest rates rise, so do rate-lock complaints. Patricia Cunningham, Consumer Affairs Manager at the Illinois Office of Banks and Real Estate, says that in 1994, when interest rates were high, more than 600 rate-lock complaints came in. In 1995, when interest rates fell, so did the number of complaints — by half. In 1996, with interest rates back up again, the number of complaints also rebounded.
Next time, a Look at #4 and #5 in this series…

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Our next several posts will discuss the various activities that must happen before you can close on a mortgage loan, and tells you what will happen at the closing meeting, including what types of documents you can expect to receive.

The mortgage loan closing (or settlement) is the meeting at which you take official ownership of the house. You’ll be required to sign many papers and pay your closing costs at the meeting in order to take possession of your new home. Technically, two separate closings occur at this time: the closing of your loan and the closing of the sale. Then, at the end of the meeting, you get the keys to your new home!

Although the closing process varies from state to state, and even within the same county or city, certain activities are standard. It is to your benefit to understand the many activities that need to occur before, during, and after the closing meeting and their costs.  Of course, as your Buyer's Agents, we will assist you every step of the way in the closing process!

More on this topic in our next post.  Why not subscribe to our blog using one of the convenient subscribe icons to the right of this post?

Home Maintenance Checklists

Your mortgage requires that you adequately maintain your property and not allow it to deteriorate. And, as a homeowner, you can’t afford to sit back and defer maintenance. You can extend the life of appliances and fixtures and avoid expensive repairs by doing routine maintenance yourself.

It’s a good idea to set up a budget for your home’s regular maintenance and unexpected repairs. You may want to budget 1 percent of the purchase price of your house to cover annual maintenance and repairs. You also want to adhere to a regular savings plan to cover essential bills, emergency repairs, and large, periodic expenses such as property taxes and homeowner’s insurance (if they’re not held in an escrow account by your lender). Some financial advisors suggest saving 5 percent of your take-home pay. You must commit this amount every payday to make it happen.

Here is a seasonal checklist that will give you an idea of what you can do in the spring and fall each year to maintain your home…

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