Staying Away From Loans That Are Bad For You

A recent article from CNN Money stated that, "Bad loans are contributing to a crisis in home ownership with delinquencies and foreclosures rising steeply this year."

Here at First Family, we believe that it is the loan officer's responsibility to look out for your best interests as the customer and consult with you to find the best loan scenario for you. In the end, we believe that what's best for the customer is ultimately best for us.

The article then went on to outline some practices that are deemed most troublesome. We've outlined them here so that you can know what to look out for and when to ask more questions. Some times these things can be beneficial, but when misapplied they can be abusive.

1. Prepayment penalties: When borrowers seek to pay off expensive loans early they may be hit with a fee of as much as six months of mortgage payments.

2. Failure to require escrows for taxes and insurance: These expenses add to the monthly costs of home ownership but mortgage servicers do not always require borrowers to bank the payments in escrow accounts with them. As a result, the payments may be put off, resulting in tax delinquencies or insurance coverage lapses.

3. Stated income and low-documentation lending: "So-called "liar loans" that encourage borrowers to exaggerate income to qualify for larger mortgages than they can handle.

4. Failure to give adequate consideration to a borrower's ability to repay a loan: Many loan originators have no monetary interest in loans after they the deal is done. That encourages them to approve borrowers they know, or should know, cannot afford to make the payments.

The article then goes on to conclude, "These practices are not, in themselves, abusive. Borrowers may, for example, rightly choose a loan with hefty prepayment penalties if that lowers the interest rates on their loans. The problems arise when loan originators apply these provisions indiscriminately or with predatory intent."

These facts make who you are doing business with on your loan or refinance of utmost importance. Read More Here