The Real Estate Encyclopedia
How Do I Protect Myself From Last Minute Closing Costs Or Rate Changes?
Category - Mortgage Questions - Mortgage Loans FAQ's

The first thing a buyer should do when planning to buy a home is to talk to a reputable lender and be pre-qualified.  The pre-qualification process will help you determine the amount you can afford to spend on a home (be sure the lender obtains accurate documentation to help him assess your financial capability.) At the same time, it is a good idea to lock in a rate, especially if rates appear to be on the rise.  The buyer should consult with the lender on the precise terms of the lock-in. 

 

Buyers must be aware that in the mortgage business, a promise is just a promise, not a guarantee. Brokers and lenders can tell you anything they want -- and even put it in writing - then turn around and change them.  This is because most lock rates include fine print caveats. 

 

Therefore, when locking in a rate, the buyer must find out how long the rate lock is good for and whether it will definitely extend long enough to get through closing. One of the main reasons people end up paying more for their loans is that they do not lock in their rates for a long enough period while the purchase process, including title search, appraisals, inspections, etc. can delay the closing.

 

In order for the buyer to protect him or her from changes in the loan rate, points and parameters between loan application and closing, buyers should remember the following guidelines:

 

       Never overstate your income, credit or present property value (any discrepancies will be discovered during the loan approval process).

 

       Understand what the commitment or lock-in agreement says - ask as many questions as possible and get it in writing.  If the lender is not willing to submit the commitment in writing, find another lender.

 

       Continue to make your monthly payments on credit cards and mortgage loans until you close on the new loan.  Any overpaid mortgage amount will be refunded by the lender once that loan is paid off.

 

       Include as much information as possible when you apply for your loan.  Do not hide liabilities.

 

       Inform the lender if you have only been on your recent job for a few months or are self-employed and are unable to share tax returns.

 

       Inform the lender if your present property has recently been found to be in a flood plain because this may affect the property value.

 

       Inform the lender if you are buying a condominium in a first of, for example, four phases

 

       Reconfirm the present appraised value of your home.

 

       Inform the lender if you have gone through bankruptcy in the past.

 

       Keep in mind that a rate lock agreement does NOT unconditionally guarantee the terms of the loan. If you overstated your income, for example, whether knowingly or unknowingly, you could end up paying a higher rate or more points than shown on your agreement.

 

       Question discrepancies between your initial "good faith estimate" and your HUD-1 settlement statement. Federal law requires lenders to provide a good faith estimate, or GFE, statement to consumers within three days of when they apply for loans. The document is an estimate of what closing costs the borrower will have to pay. The HUD-1 statement is the document that shows the actual costs. Lenders do not have to provide that until either closing day or the day before. Ask as many questions you need to satisfy all your concerns regarding discrepancies.

 

       Underestimate rather than overestimate the amount you can afford for a home. This can protect you from unforeseen changes in your loan terms. There are legitimate reasons why you may have to come up with several hundred or a couple thousand extra dollars in fees or points to close. If you do not have that kind of money in savings, you could lose the home you are trying to buy.

 

       Take any interest rate changes seriously.  A small percentage change in the loan rate, say a quarter percentage point, can increase your monthly payments and cost over the term of the loan by thousands of dollars. Do not be afraid to walk! 

 

If you feel you are a victim of misrepresentation by the lender, your state's attorney general and mortgage banking or broker regulator are good places to place your complaint. If you got your loan from a federally chartered or regulated bank, you can get information about who to complain to at the site run by the Office of the Comptroller of the Currency. These agencies may be willing to contact your lending institution or investigate on your behalf.  Sometimes a phone call or letter from someone "official" will be enough to prompt your lender to refund some of your money or agree to modify your loan.

 
Category(s)
Mortgage Questions - Mortgage Loans FAQ's
Home Buying Questions - Buying Legal & Closing FAQ's
Home Buying Questions - General Home Buying FAQ's
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