Stop! Read These 5 Essential Tips Before Signing Any Mortgage
When you’re ready to buy a home, the first step is applying for mortgages. Once you’ve sifted through all of the offers, found the perfect home, and negotiated a purchase price, the only thing standing between you and the keys is signing the mortgage and closing escrow. When you sit down to sign the mortgage contract, you’ll be presented with a giant pile of papers that you’re expected to understand before you sign. The pile of papers can be intimidating, especially when you’re committing to terms for 10, 20 or 30 years. Here are 5 things you should look for in the mortgage before you sign on the dotted line.
1: Understand the Escrow Payment Details
Unless you’re putting down a large amount of money, the lender will require that you have an escrow account before you hold no equity in the home. Escrow accounts are used to pay property taxes, PMI, and insurance. It’s important to understand how much of your monthly payment is going towards the funding of your escrow account before you sign. You’ll be making a monthly escrow payment, so multiply the monthly payment by 12 to see how much will be in the escrow account. Use your home insurance premiums and assessor tax estimates to see if that is enough, because if it isn’t, you’ll have a shortage you must pay back the next year.
2: Are There Pre-payment Penalties?
If you hit the lottery and you want to payoff your mortgage, are you willing to pay a percentage of the principal because you’re paying the lender off early? Lenders bank on earning interest income, and they don’t earn as much if you pay off your loan years before it matures. Pre-payment penalties are common when you choose to refinance, but be sure that the terms are reasonable. Some penalties will be 6 months of interest or a percentage of the principal. If the amount is high, avoid signing the contract unless you’re sure you will not want to refinance in the future.
3: Are There Prepayment Penalty Waivers?
You never know when you might need to relocate, and you should always be aware of the details of your mortgage if you do need to sell your home before it’s paid off. The last thing you want to do is take a huge financial hit when you’re selling a home, though, most mortgage companies offer some sort of penalty waiver in the event of a sale. Check the terms of the company’s waiver and be sure you’re protected in unique scenarios.
4: How Will PMI Be Removed?
If you ask any experienced Los Angeles real estate agent about PMI, private mortgage insurance, they will tell you the only way to avoid it is to have 20% down. In the past, there were ways around paying PMI, but after the housing marketing crash, this is a strict requirement. Once you hold 20% equity in your home you’re not required to have PMI based on regulations. Verify whether the PMI will be removed immediately, or if you will have to send a request to the company for this to be done.
5: Check for Accurate Information on the Acknowledgment and Agreement Section
If you sign the Agreement you are stating that all of the information on the application is true to the best of your knowledge. You should verify your income and other personal information to verify the lender did not alter earnings to get you a better rate or loan type. If the information is misleading, you could face Federal charges of mortgage fraud even though you were not defrauding the company.
You may be excited to close escrow, but don’t rush through the signing. Review the document closely, ask questions, and pay attention to the details the lender may not want you to know. This can save you a headache in the future.
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Category: Mortgage
