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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 your mortgage. 

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 loan.  Making comparisons of the APR will help you when you are mortgage refinancing or purchasing a new home.  The 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 budget. 

By paying attention to these and other red flags, you will be able to save yourself some grief when you are house shopping.