Mortgage Red Flags to Flee
When you are planning to
purchase a home or do a mortgage refinance, you want to make sure you are getting a good deal on the loan
program you select. You want to look at terms and rates. If you take out a 30 year
mortgage loan, you want to be sure that you made the best decision up front because you will have that loan for
many years to come. Be sure to keep an eye out for these mortgage red flags so that you don't make a mistake with
One red flag is to make sure you understand what
a simple interest rate means.
You may get a quote of an interest rate from different lenders and one will be
much lower than another. However, there are many items included in the Truth-In-Lending and the Good Faith Estimate
disclosures that are supposed to help you compare the different fees for different loan products, but which
in reality may make things a bit more confusing than otherwise. It can be hard to figure
these along with the simple interest rate you were quoted.
A simple interest rate will not take into account
the closing costs and other fees that are associated with a loan. One of the easiest ways for you
to determine that you are getting the best interest rate is to make comparisons of the APR or Annual Percentage
Rate from each lender. This number will be a composite of the fees and points associated with the
comparisons of the APR will help you when you are mortgage refinancing or purchasing a new
APR includes everything and is the effective interest rate on the loan.
Another red flag is to go house shopping before
you have determined the amount you can qualify for. A realtor an help you see the
benefits of a house and you may want the house you are looking at, but if you can't really afford it you either
won't actually qualify for the loan or you could get the loan and not be able to afford the payments and end up
with a bad credit mortgage. You are much better off getting
prequalified before you begin to work with a realtor and make sure that the realtor understands your price
limits so they don't try to push you above what you want to pay. Remember that you will need
cash to pay for the closing costs and down payment as well, and don't overstretch your
By paying attention to these and other red flags,
you will be able to save yourself some grief when you are house shopping.