If there’s one common worry borrowers have, it’s that their loan officer is ripping them off. If you aren’t familiar with the mortgage industry, it can seem rather easy to rip you off. How would you know any different, right? That’s why you need to educate yourself about mortgages before you apply for one. The more you know, the less likely it is that you’ll pay more than necessary for your loan.
Here are the top things to watch out for when you apply for a mortgage.
A Loan Officer Asks for Money Up Front
No mortgage lender needs money up front. Any money you owe would trade hands at the closing. The only exception to the rule is the appraisal or inspection. These are third party services that often require payment upfront. However, the loan officer should never ask you for money upfront.
The very rare lender may require an application fee upfront. However, since this is not common practice today, it’s best to shop around. If you find a lender requiring a fee upfront, go somewhere else. There are hundreds of lenders you can apply for a mortgage with; don’t make the mistake of paying the one that claims to be the only one that can help you.
A Loan Officer Promises You an Approval
No loan officer can promise you an approval. Those that do are trying to make a quick buck. They are probably the same lenders that require payment upfront before they will look at your application too. There are very few borrowers in the world that qualify for every single loan program out there. It is impossible for anyone to know what you qualify for before reviewing your application. Even then, they still need proof of everything you put on your application.
If a lender seems overly willing to get you an approval, proceed with caution. It’s best if you see everything in writing. If they claim they can get you approved for a conventional loan. Ask for the proof of the automated underwriting results. This is a required program the lender must run your application through to get a preliminary approval. Without it, the lender has no idea if you qualify for the loan or not. Almost every loan program has some time of program the lender must run your application through – ask for proof of those results before committing to them.
A Loan Officer Forces you to Lock in a Rate
You are not legally obligated to lock in an interest rate until you are ready to close. Generally, lenders need about a week in order to draw up your paperwork and make sure the rate fits within your debt ratio. Any lender that forces you to lock in a rate or they refuse to move forward is not legitimate. They are not supposed to ‘force’ you to lock in an interest rate. You should lock in a rate when you feel it is the right rate for you.
Some loan officers may hold it over your head saying that you won’t get approved anywhere else or that you’ll never see another low rate like this. Again, you should only lock in the rate you are comfortable with taking. If it’s too high or you just aren’t ready, don’t do it. The loan officer is likely only trying to make the most money on your deal by getting to lock in a specific rate.
A Loan Officer Deters you From Comparing Several Offers
Many borrowers assume they hurt their credit if they apply with more than one mortgage lender. Your loan officer may even tell you this in order to deter you from shopping around. However, you have the right to shop around! If you do so within a few weeks’ time, you won’t hurt your credit. The credit bureaus treat it as one inquiry rather than several.
This means you can get quotes from 3 or 4 lenders. Get their quotes in writing, including the fees they will charge. This gives you the best chance at determining which offer is the best. Don’t just look at the interest rate. Compare the fees and the APR too. You want to know what the loan costs you over its entirety.
For example, one lender may offer you a really low rate, but charge excessive fees. Another lender may charge a slightly higher rate, but lower fees. You need to know these amounts so you can look at the big picture. What will the loan cost you over the 15 or 30-year term? That is the best loan for you. Only you can decide which one is right.
Each of these acts gives the loan officer the chance to rip you off. Today, it is slightly harder for lenders to get away with this, though. They must follow the Qualified Mortgage Guidelines as well as the Ability to Repay Rules. These rules help limit the fees lenders charge and keep the interest rates intact. Either way, you should always shop around and make sure you ask as many questions as you want. This way you are an informed borrower taking out the mortgage that fits your needs the most.