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5 Secrets Home Mortgage Lenders Won't Reveal
Mortgage lenders don't have prospective homebuyers' best interests at heart. Loans, after all, are products and mortgage lenders are salespeople pushing those products, whether they're right for a specific homebuyer or not. Lenders typically earn a one percent commission on each mortgage or mortgage refinancing they successfully process as well as additional points, called overages, if they can convince homebuyers to go with a loan higher than average current mortgage rates.
What are some other secrets mortgage lenders don't want homebuyers to know?
- Lock Rates: It's not unheard of for unscrupulous lenders to delay processing a loan if current mortgage rates are rising and the end of a 60-day interest lock-in rate is fast approaching. While mortgage brokers themselves aren't directly regulated by a federal agency, the Federal Trade Commission has taken action in the past against companies routinely engaging in this questionable practice.
- Inconsistent APR Policies: Lenders use APRs (Annual Percentage Rates) when they promote mortgages or mortgage refinancing in order to give prospective homeowners an accurate estimation of the loan's annual cost to them.
However, every lender calculates the APR in a slightly different way. One lender may include application fees in the APR calculations, while another lender may not. Additionally, APRs differ according to the size of the loan, whether interest will be assessed at a fixed or variable rate, and insurance required. Homeowners may end up paying different amounts on two loans both advertised at an APR of 3.5 percent.
- Garbage Fees: Prospective homeowners enter the loan negotiation process knowing there are additional costs associated with it. Lenders typically charge fees for appraisals, credit reports, and title and escrow services, as well as for locating a loan. But many lenders charge fees above and beyond those services. The industry nickname for these charges is "garbage fees." Garbage fees can include charges for document preparation, automated loan underwriting and processing, property tax confirmation, flood certification, and the use of a notary public to witness signatures on recordable documents.
- Mortgage Insurance: Borrowers who put down an initial payment of less than 20 percent of a property's value will be required to buy mortgage insurance. Lenders will tell them that insurance is easily canceled once equity grows to over 20 percent. It's not. Prospective homeowners need to understand the precise terms of their insurance obligations before they close their loan.
What are some other secrets mortgage lenders don't want homebuyers to know?
- Lock Rates: It's not unheard of for unscrupulous lenders to delay processing a loan if current mortgage rates are rising and the end of a 60-day interest lock-in rate is fast approaching. While mortgage brokers themselves aren't directly regulated by a federal agency, the Federal Trade Commission has taken action in the past against companies routinely engaging in this questionable practice.
- Inconsistent APR Policies: Lenders use APRs (Annual Percentage Rates) when they promote mortgages or mortgage refinancing in order to give prospective homeowners an accurate estimation of the loan's annual cost to them.
However, every lender calculates the APR in a slightly different way. One lender may include application fees in the APR calculations, while another lender may not. Additionally, APRs differ according to the size of the loan, whether interest will be assessed at a fixed or variable rate, and insurance required. Homeowners may end up paying different amounts on two loans both advertised at an APR of 3.5 percent.
- Garbage Fees: Prospective homeowners enter the loan negotiation process knowing there are additional costs associated with it. Lenders typically charge fees for appraisals, credit reports, and title and escrow services, as well as for locating a loan. But many lenders charge fees above and beyond those services. The industry nickname for these charges is "garbage fees." Garbage fees can include charges for document preparation, automated loan underwriting and processing, property tax confirmation, flood certification, and the use of a notary public to witness signatures on recordable documents.
- Mortgage Insurance: Borrowers who put down an initial payment of less than 20 percent of a property's value will be required to buy mortgage insurance. Lenders will tell them that insurance is easily canceled once equity grows to over 20 percent. It's not. Prospective homeowners need to understand the precise terms of their insurance obligations before they close their loan.
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