out for the hidden costs: Lenders will hit you
& casually inform you of many hidden costs just before
you are about to close the deal.
Some of these costs include:
- Documentation fees
- Processing fees
- Underwriting costs
- Other miscellaneous fees
They will hit you with all these fees just before
you are about to close the deal, when they know you will NOT back
out (backing out will be costly for you). To protect yourself,
ask for a list of ALL these fees in detail upfront, before you
even begin to bargain the deal. Then, ask them to give you all
these fees in writing, with a valid signature. Ask your lender
to give you a Good Faith Estimate, more about this topic can be
read at: http://www.bankrate.com/brm/news/real-estate/buyerguide2004/closing-estimate.asp You can tell if your lender is trustworthy if he tells you
about all these fees upfront, although by law, he is required
to tell you all these fees 3 days after your initial application.
2. Low-Ball Closing Costs: Lenders
will attract your attention and business towards them by offering
you very low closing cost estimates. This is known as the "low
balling" technique. Once they low-ball you into their system,
they will reveal the actual high closing costs just last minute
before the deal is closed. They know that it will be too late
for you to back out of the deal. Some lenders will deliver you
the actual closing costs day before you sign the mortgage settlement
and you shall be forced to pay all the actual costs or risk losing
your property. At this point, we should also define what closing
costs actually are. Closing costs are the expenses incurred in
acquiring your home. They usually range from 3-5% of the value
of your home. Here's a list of common closing costs:
- Buyer & Lender Attorney Fees
- Mortgage application fees
- Property appraisal fees
- Mortgage broker's commissions
- Lender Inspection fee
- Underwriting fee
- Mortgage Insurance Premiums (charged if your
down payment is less than 20% of the value of your home)
- Closing settlement fee
- Notary fees
- Title search fee
- Credit report inspection fees
- Interest charged from the day of mortgage
settlement to the date of first payment
- Property taxes from the day of mortgage settlement
to tax year end
3. Fixed Locked In Interest Rate: Most
mortgage lenders will lock you in with a fixed interest rate over
the life of the mortgage loan, at the time of closure. If interest
rates go up on the date of closure, you will have saved yourself
some money (a lot of money) by locking in a cheaper interest rate.
However, if the interest rate goes down while you locked in a
higher interest rate at the date of closure, the lender will make
some profit off you. Beware of some lenders though, they can use
the following tactics:
- If the interest rates drop before the date
of closure, they will inform you that your interest rates are
locked in at a higher percentage and they cannot change it.
- If the interest rates rise before the date
of closure, some lenders will inform you that your interest
rate is NOT locked in, and you will therefore be charged a higher
4. Floating Mortgage Interest Rates: If you select a variable interest rate instead of a fixed
rate, your monthly mortgage payments will vary and change all
the time, in accordance with the fluctuations in the market. Some
lenders will add 1-3% points on top of the interest rate fluctuations
in the market, to make some extra money off you. Clarify with
the lender in writing exactly how many percentage points of interest
they will add on to the floating mortgage interest rate. Make
sure you get this in writing, word of mouth means nothing!
5. Discounts and On Time Payments: Lenders
are nice in the form that you will get discounts on your mortgage
loan if you make regular on time payments for a certain # of years.
However if you miss even 1 single payment, some lenders will take
away all these years of discount from you, thus making you pay
a larger monthly mortgage bill. Check with your lender on the
grace period allowed, if you are not able to make your payments
on time (even if its for 1 single month).
6. Online Mortgage Applications: Some
lenders will offer you additional discounts if you make your application
on the Internet and communicate with them only via email. However,
these discounts and any benefits you get will be taken away from
you if you change your email address without notifying the lender,
or if they send you a mail and it bounces 2 times within 48 hours.
You can never trust computers, sometimes your Email program crashes
and you can not receive email within 24 hours. This is a high
risk loan and should be ultimately avoided, if possible.
7. Automated Monthly Debt Payments: Many lenders prefer setting up your bank account so that
your monthly mortgage payments are automatically debited from
your accounts. This helps the consumer avoid paying late fees
for missing 1 or more payments. This is also advantageous to the
lenders in that they will receive regular on time payments without
having to pester the borrower. The problem in this scenario arises
when the mortgage settlement dictates the borrower to set up an
Automated Clearing House (ACH) within 30 days of the settlement.
If the Automated Clearing House (ACH) does not get implemented
within these 30 days, you will lose all your discounts and will
probably have to pay penalties.
8. Credit Reports & Bureaus: It
is important that credit lenders report accurate information to
Credit Bureaus so that your Credit Report looks good. There are
lenders however who whill try to ruin your credit no matter what.
For example, if you make regular on time payments, they will not
report this good information to Credit Bureaus. However, if you
miss 1 single payment, they will report this late payment immediately.
Furthermore, some credit card lenders will not report your credit
limit. For example, if your credit limit is $1000 and you have
used up $200, your Credit Utilization is 20%.
If your credit limit is NOT known to the Credit Bureaus and you
use up the full $200, credit bureaus will assume you are fully
using up your $200 limit. This obviously has a negative impact
on your credit report.
9. Avoid Late Payments: While
some lenders will offer you grace period incase you are late in
making your monthly payments, other lenders just wait to pounce
on you so bad. Make 1 single late payment and they will report
this to the Credit Bureaus and skyrocket your interest rates.
If you dispute this, they will show you the fine print in that
little mortgage settlement agreement you signed.
10. More Credit Cards = More Debt: Most
credit card issuers will issue low credit limits and low # of
credit cards to borrowers with high risk of default. There are
other issuers however who will offer many cards to high risk borrowers
with very low credit limits. Why? They will have more payment
due dates to remember + more money to spend which is NOT theirs
+ more late fees + more penalties = more debt piling up. Instead
of having multiple credit cards, stick to the one with the lowest
APR and keep your credit history alive and well by using only
that 1 credit card. If you need a credit limit increase, ask your
lender to give you one.
11. Credit Card Balance Transfers: If
you transfer your credit card balance from one credit card company
to another, be very careful because if payment is made through
a check, you could be charged interest from the date the check
was written to the date the check was cashed in. What's worse,
both your old credit card issuer and your new one could charge
you this interest fee. To avoid this, check with your lender's
interest policy and preferably select an Electronic payment to
avoid the time delay of check processing.
12. The PrePayment Penalty: This
penalty applies if you pay off a large portion of your loan (the
principal amount) or the entire loan, within a short period of
time. Many borrowers like to pay off their loans with minimum
interest paid, but lenders obviously want their own interest revenue
as well. Check the fine print of your loan settlement agreement.
If you are sure that you will be paying off your loan within a
short period of time, search for loans that have no prepayment
penalty attached to them.
13. No Down Payment or Low Cost Loans: Loans that offer 0% down payment or very low monthly
payments actually sound too good to be true. The payments on these
loans are very low because the interest you are SUPPOSED to be
paying is actually added to the principal of the loan. Your loan
amount therefore actually gets bigger every month; you think you
are paying off your loan, however you are actually piling up more
14. Inactivity Penalties: If
you hold multiple credit cards and use only 1 of them daily, you
will be shocked when you see the interest rates on those other
inactive cards skyrocket due to inactivity. Yes its true! If you
do not regularly use your credit card and have a long period of
inactivity, your credit card issuer will hike up the interest
rate without informing you. When you do actually charge expenses
to these inactive credit cards, you shall be in for a surprise
when you receive the credit card statement upon month end. What's
more, you'll have no choice but to pay these higher credit card
bills or face a negative entry on your credit report.
15. Increased Debt Load: A
2005 survey by Consumer Action found that if you apply for a mortgage
loan or a car loan or even a new credit card, that warrants sufficient
grounds for your credit card issuer to increase your interest
rates. This is because they think you will be taking on an increased
debt load and will be in higher risk of default.