Given how easy it is to get skinned on a mortgage deal, it’s amazing anyone ever buys a home, says Liz Pulliam Weston, personal finance columnist for MSN Money.
But buy we do — and then refinance, and refinance again. Our ignorance of how the mortgage process works and the many ways mortgage pros rig the system in their favor lead many of us to pay far more than we should.
Taking Ms. Weston’s comments into consideration, here is the key information from a former senior loan officer that mortgage lenders don’t want borrowers to know:
1. Not knowing which mortgage fees the borrower can — and cannot — negotiate. Or how the lender actually makes money on you. Without this understanding the borrower could overspend by thousands of dollars . . . in mere seconds. Remember, the loan officer is different from your friendly bank teller. The bank teller is probably paid a salary to be courteous and helpful. The loan officer’s job is to make money and is probably paid on commission.
2. Choosing and trusting the first loan officer the borrower interviews. Just like you probably wouldn’t say yes if someone asked you to marry them on your first date. You are looking at a commitment here of the largest single investment you will ever make that will probably last longer than most marriages.
3. Using an interest-only or “payment option” adjustable-rate loan primarily to qualify for a more expensive house than you could normally afford. In the current market of slowing appreciation and falling prices, such a loan could leave you with a mortgage balance that could be more than the value of your home. And if the payment adjusts from a below-market teaser rate, you may be paying hundreds or even thousands of dollars more per month or may even no longer be able to afford the mortgage. At this point, your builder or lending will have little interest. They’re already made their money. But you may be looking at a foreclosure and loss of your biggest investment.
4. Thinking the interest rate is always the main thing. Most so-called astute mortgage shoppers think they should call around to shop rates. And rate envy is common, especially among male borrowers. But what closing costs will one need to pay to get that fabulous advertised rate? Do comparison shopping not just on the interest rate but on all of the loan costs.
5. Not comparing the final fees listed on the closing documents to the up-front estimates to avoid the lender packing the loan with added-on fees without the borrower’s knowledge. It is relatively easy for the lender to do this because there will be a ream of forms that you will need to examine and sign at closing. A deceitful closing agent may also use various tactics to distract you from the inflated figures so you won’t notice.
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6. Not knowing if the mortgage has a pre-payment penalty - until it’s too late. Else you could find yourself in a Catch-22: You may need to refinance the mortgage so you can afford the monthly payment, but you may not be able to afford the prepayment penalty to allow you to refinance!
7. Thinking that renting is always just throwing money away. At least in the short run, it can cost thousands less to rent. For instance, don’t buy a starter house. If you will be living in the area for less than five years or are unsure of how long you will be in your current job or marital status, you could potentially save thousands by staying in your apartment. Closing costs alone of a house may be $1,500 to $2,500. You may also be looking at a Realtor fee to sell your house of 6%. On a $200,000 house that’s $12,000. And the moving van hasn’t even pulled up to your door yet!
8. The borrower does not know if he or she is paying a back-end yield spread or Service Release Premium. These are fees paid to brokers and loan officers for upselling the interest rate to borrowers.
9. Paying for mortgage life insurance, credit insurance or other expensive lender add-ons to increase the amount of kickbacks the lender can receive from various vendors.
10. Paying hundreds of dollars to have a company set up a biweekly mortgage payment plan, something the borrower can generally do for herself or himself — for free.
Ted Janusz is the author of Kickback: Confessions of a Mortgage Salesman, one of the best-selling books on mortgages on Amazon.com. The book details Ted’s experience as a senior loan officer for a regional mortgage bank and the deceptive practices the bank used to bilk borrowers out of thousands of dollars.
Ted is a member of the National Speakers Association and the National Speakers Association of Ohio and has earned his MBA in Marketing from the University of Pittsburgh. He is a former professional entertainer, having performed at over 400 events.
He is president of his own speaking and training company, Janus Presentations, LLC, http://www.januspresentations.com His main clients are Rockhurst University Continuing Education Center, Inc., for whom he conducts seminars across the country on Creative Marketing Strategies, How to Get More Organized, Time Management and Executive Presentation Skills, and eBay. For eBay he conducts eBay University nationwide, showing attendees how they can set up their own businesses on the online auction site.
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