Kathleen G. Kane - Pennsylvania Office of Attorney General - Protecting Pennsylvanians

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Home Mortgage Smarts

Purchasing a new home is likely the biggest financial decision you will make. With a vast amount of information at your fingertips, it is increasingly easier to comparison shop for the best deals and options. In order to secure the best deal on your home purchase, you should do some homework before starting your search.

First of all, know the terminology. A home mortgage is a conditional pledge of property (i.e. your home) to a creditor as security (i.e. collateral) for performance of an obligation or repayment of a debt (i.e. your home loan); refinancing means, paying off an existing loan with the proceeds from a new loan, using the same property as collateral; and the loan to value ratio is the percentage of the loan amount to the appraised value (i.e. sales price) of your property. For more mortgage terminology, visit www.attorneygeneral.gov and view the ?Loan Smarts? brochure.

Once you understand the terms associated with mortgaging a home, you?re ready to compare mortgage rates and options. When shopping for the best mortgage rate and options for you, keep the following information in mind:

  • You should never agree to a loan/mortgage that is worth more than the value of your home (e.g. a loan to value ratio of 85% is a loan for 85% of the appraised price of your home).
  • Be aware of all the cost involved in the mortgage process. Some lenders charge high up front fees like origination, closing and other costs so they can offer you a lower interest rate.
  • Do not let a loan/mortgage officer convince you that you can make a higher monthly payment then you can afford; set a limit for your ideal monthly payment amount and stick to it. Remember that you will also be responsible for paying property taxes and insurance for the home. Find out if taxes and insurance are included in your monthly payment or whether you will be responsible for the payments at the time they are due.
  • Be wary of balloon payments (paying only the interest every month and then owing a huge lump sum at the end of the payment term) and flipping (repeatedly refinancing your loan/mortgage with new costs each time you do).

When speaking with a loan/mortgage officer, make sure you understand all the terms of the loan/mortgage agreement. Legitimate officers are happy to answer all of your questions and will allow you to shop around, compare and research other prices and options.

Before closing the deal, make sure what you were told is reflected in writing; do not sign an agreement that differs from what you understand the terms to be. Also, do not sign an agreement that contains any blanks to be filled in later by the officer. Finally, make sure to get a copy of the agreement and all other documents before leaving the office.

If you have second thoughts about your loan/mortgage after closing, most borrowers allow three business days to rescind the agreement. The recession must be in writing and sent directly to the creditor.

If you have any questions about the mortgage process or feel that you have been taken advantage of, you can contact the Office of Attorney General?s Bureau of Consumer Protection at 1-800-441-2555 or visit our website at www.attorneygeneral.gov. You may also wish to visit the Department of Housing and Urban Development?s website at www.hud.gov or call 1-800-569-4287.