COMMON ERRORS

Although the mortgage industry is a business of bankers and professionals,   unfortunately customers do fall victim to inexperienced or dishonest loan officers.   The following represents common areas where both misrepresentation and mistakes are made:

CLOSING COSTS

When shopping various mortgage providers to compare rates & closing costs.....please beware.  The exact definition of "Closing Costs" is a gray area or moving target. There is confusion as to which expenses are considered "Closing Costs" and which expenses are considered to NOT be "Closing Costs?"  Some expenses belong to your loan officer's company, some belong to the actual lender and some belong to the title company and some belong to third party vendors like the appraiser or surveyor.  The most dependable method of comparison is by obtaining a "Good Faith Estimate" in writing from the various mortgage providers.  This way you can compare in writing a complete break down of each company's proposal. ( be sure to see Tip # 5 & Tip # 6 below )

TIP  # 5

If you are depending quite heavily on your loan officer's estimate of  "cash out of pocket" that you will or will not write a check for at closing, we advise you to have them double-check the figures as soon as the new property value appraisal and written pay-off from your current lender have been received.  Or better yet, ask for copies of them to compare to the initial Good Faith Estimate as well.  These are two variables that will impact your "bottom line" the most yet the exact final amounts cannot be fully known in the beginning.

TIP  # 6

The lender is only required to provide an "estimate" of costs,  therefore your only guarantee to accuracy is your lender's experience. HUD is considering a revision to RESPA (Real Estate Settlement Procedures Act) that would require greater accuracy, but no changes have yet occurred.   Ask for names & numbers of previous clients and maybe a Realtor they commonly work with.   A Realtor is a good source for referral because he/she should have a history of experience with that lender to provide a gauge of their professionalism.

THE INTEREST RATE 

What would you do if you had been working on your loan for months and you discovered at the closing table that the interest rate promised hadn't been delivered?    Well...it does happen!    Usually the borrower will (under protest) go ahead and sign because quite often its too late to make changes.   This is only one of the horror stories I've heard.    Make sure you clarify how long the lender will take to close the re-finance and how long the "RATE LOCK" is good for.   The rate lock is a pre-determined period of time that the lender will guarantee the rate for.   GET IT IN WRITING!  *Remember...on a refinance there's usually a 3-day right-of-rescission before everything is final.   That means you must close no later than 4 days (assuming no weekend or holiday) prior to the rate lock to be sure you get that rate.    Most re-finances take 21 to 35 days so if they tell you a 10 day rate lock,  they had better tell you they can have you ready to close in about 4 or 5 days.   Good luck in such a case as this.    

Some people want their file in process with the lender without the rate being locked at all.   This is called "FLOATING."   These are the people that think rates are going to be coming down or at least not changing.    If they're right either way,  they should end up very happy because the shorter the lock period the better the rate.    Very short rate locks (7 day, 10 day, etc.) are only available to approved loans that have been floating their rate.    If you can get an 8% loan when you first start the process for a 45 day lock,   you should be able to get a 7.75% or 7.875% rate on a 10 day lock if rates don't change.     And if rates drop,    it could get really good.    *But remember...rates rise faster than they fall.

MONEY FOR NOTHING

You are usually required to pay money up-front to initiate the loan process.    Somewhere around $350 to $450 unless you're asking for a very long rate lock ( 120 days to 180 days, etc.)     The purpose of the initial $350 to $450 is to cover the costs of the appraisal and credit report should the property not appraise high enough and/or the borrower's credit is unacceptable.     Typical rate locks without additional up-front fees collected are usually in the 30 day, to 70 day range.      Extended locks usually require .50% to 1.0% of the proposed loan amount up-front.     If you write a check for $350 only to find out weeks later you never had a chance of qualifying because your situation didn't fit the program guidelines of the intended loan,    that means you just spent $350 and are probably not going to get the loan product you wanted.     It also means your loan officer didn't do their job checking the required program parameters.    Even if you have perfect credit and there's plenty of equity in your property to support the mortgage amount you're asking for,    if something about your situation doesn't fall within loan guidelines the lender probably won't make you a loan on that program (if they make you a loan at all)

TIP  # 7

After the loan officer has reviewed the facts surrounding your situation and made the determination that you do qualify for the desired loan program,   you might request a pre-qualification letter "IN WRITING" stating you do qualify for the specific loan program you seek.    You might also have it state you're entitled to a refund if the loan doesn't close due to guideline parameters.

THE LOAN PROGRAM

Besides ending up with the interest rate you were promised on the day of closing,   make sure you're getting   (The Loan Program)   you were promised.    Its difficult to believe someone would try to slip a different loan program to you at closing,  but it has happened before.    Of all the different papers you are asked to sign at the closing table,   the   NOTE   is the one that truly matters the most.    It will reflect what your new loan amount is and what the repayment terms are.    

TIP  # 8

Of all the documents at closing,  you want to make sure you at least look over the NOTE and settlement statement.

TIP  # 9

When you're notified you have received full "Loan Approval",  that's the time to ask if the lender is requiring a   termite inspection,  septic inspection,  foundation inspection,  new survey,  or any other special requirement before the loan can close or fund.    These are called either the "CLOSING CONDITIONS"  or  the "FUNDING CONDITIONS"  Also ask for the name and phone number of the title company that is handling the closing.   Call the title company and make sure they have all the required title work completed.   And call your Home Insurance Agent to make sure he or she have done everything in preparation for the new loan and aware of what day you plan to close.

TIP  # 10

If you have skipped your last payment due with your old mortgage company,   make sure the new loan will close and "FUND" prior to your old mortgage company charging you a late fee.   If a period of 30 days passes before your old mortgage company is paid off by the new one,   they can not only charge a late fee but can report a late payment on your credit report.   Be advised!