Monday, September 24, 2007

Home Loans & Refinances: 7 Little Known Loan Secrets that Can Save You Thousands

When shopping for a home loan, getting a competent loan officer (and an ethical one) is far more important than saving a fraction of a percentage point on your interest rate. Going with the "lowest bidder" may save you five or ten bucks on your home loan, but choosing who to work with just because of the lowest interest rate could very likely get you a "loan shark" who will get you stuck with a rate that is irreversible, or you might not even get a loan at all.

The best ways to avoid originators who are incompetent, or who practice unethical tactics:

Avoid shopping for a L.O. in the phone book or newspaper. That’s where most predatory originators advertise.

Avoid committing to originators just because they promise the lowest mortgage rate. If their rate is more than 1/4 of a percent less than what most other lenders are offering, it’s likely too good to be true, and you won’t find that out until it’s too late. (Usually - the morning of closing!)

Ask trusted friends who they used for their loan.

Beware if the loan documents you are signing involve a pre-payment penalty. Pre-payment penalties are typically attached to a loan when originators are being given a large kickback from the lender. Before you sign those loan documents, get a second opinion. If the pre-payment penalty wasn’t sprung on you until you are at the closing table, you should strongly consider what you are committing yourself to before signing those documents.

Ask your trusted Realtor for a couple recommendations of originators to use. Unlike you, who won’t likely be buying again for years down the road, lenders want to make sure to impress Realtors, because those Realtors represent dozens of other loans through buyers they’ll continue to send their way.

Never - ever - get a home loan from an out of state lender. Every state varies widely on the loan closing process. Even the most competent lender could jeopardize a transaction for something as minor as not knowing whether the home you are buying is in a "wet state" or a "dry state".*

If you really want to have fun, when you apply for your loan, ask your LO what fees they charge, and after they give you their answer, ask them if that includes a "yield spread". (You’re GUARANTEED to catch them off-guard.)

*A "wet state" funds the mortgage loan on the day of closing, whereas a "dry state" funds the loan several days after closing.


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