The hot sellers market in the recent past had a lot of buyers asking me, "How can so many people afford these high priced homes?"
It was hard for a lot of buyers, particularly first-time buyers and military buyers to compete with multiple offers, and offers without a home inspection. During these times, it was normal to write anywhere from 4-7 contracts per client.
If you're keeping up with real estate news, you are aware that not only is there a rise in foreclosures, but the government is cracking down on companies and people who prey on individuals with predatory lending practices.
In case you're new to the term, Freddic Mac explains predatory lending to include:
- Excessive cost – charging interest rates and/or fees that far exceed reasonable compensation for a lender's costs or risks.
- Equity stripping – lending at a high interest rate, then repeatedly refinancing at a lower interest rate to strip the borrower’s equity in order to pay new points and fees.
- Failure to report borrower credit information – limiting the ability of borrowers to obtain the lowest interest rate available based on the borrower’s complete credit history.
- Steering to higher-cost mortgages – referring borrowers to high-cost loans when they are eligible for lower cost financing.
- Credit insurance products that are financed upfront – including single premium credit insurance that is paid in a single premium or financed in the loan amount.
In this age of information, there are real estate and mortgage websites that include pop-up advertising for low and no cost mortgages. As a consumer looking for a 'good deal', here are some ways to protect yourself, your wallet, and your credit:
- Know your rights as a borrower! Here is a link to HUD's website which includes the RESPA (Real Estate Settlement Procedures Act) Bill of Rights for borrowers.
- Understand what closing costs are involved with your loan.
- Get it in writing. If a lender will not give you a Good Faith Estimate of your closing costs, this is a red flag, no matter how enticing the interest rate.
- Get at least three estimates from reputable, local lenders.
- Make sure that you understand the mortgage that you have chosen before finding a new home. If your mortgage rate adjusts, you have to make sure that you can still afford to pay the mortgage, insurance, and property taxes, in addition to your other living expenses.
As a Realtor, I've witnessed first hand buyers who have come to me with an internet pre-approval, only to learn that they need thousands more than anticipated to close the loan, or that their loan has a pre-payment penalty, or that their interest rate will increase next month. It's very disappointing and discouraging, but it can be prevented.