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Friday, January 11, 2008

Can I Dump A Mortgage Lender?

By Ben Afzal

Basics

When you apply for a loan you are offered a written "Good Faith Estimate". This is an estimate, not guarantee, of what your closing costs will be for your mortgage.

Your closing costs can be thousands or tens of thousands of dollars.

A surprise change in your loan can be:

  • higher fees
  • higher interest rate
  • different loan
  • prepayment penalties
There may be legitimate reasons your fees increase. A main reason is that during the loan process your credit rating has declined a lot. When your credit is initially checked up front by a mortgage lender your credit may have been good. Three weeks later when the lender is getting ready to send out loan documents to you they may double check your credit and find that you have been late on a mortgage payment or some other substantial red flag.

This may cause the lender to cancel the loan, change the loan type you eligible for, change your interest rate, or require you to pay additional fees to compensate them for your risk.

Loan surprises can be in more than just the loan fees or interest rate. The loan type may be slightly different than what you expected, such as a loan based on a different interest rate index than what you were expecting. You may also end up having a prepayment penalty that either wasn't expected at all of with different terms. This can be a loan that has a three year prepayment penalty instead of a one year prepayment penalty.

Protecting Yourself

The best protection is being able to walk away from a loan. Make sure you have enough time if you are refinancing to seek another lender. If you found one lender to approve you chances are that you will find another lender as well.

WIth a refinance loan you are allowed for up to 3 days after the signing to cancel the deal.

If you don't like a mortgage deal don't sign the documents.

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