Borrowers' Top 5 Mistakes
The following list is my take on the Top 7 biggest mistakes borrowers make when signing on the dotted line. Sure we all want to buy a condo in Downtown, but let's do it prudently!
1. Forgetting to check if the loan has a prepayment penalty.
2. Not interviewing more than one loan officer: you can't assume that the first lender you meet is the best one.
3. Interest-only or "payment option" adjustable-rate loan in order to purchase their dream condo or loft that is beyond the borrower's means.
4. Not realizing that you're paying a "yield spread premium" which is a fancy way of saying that you're paying a higher interest rate than you should in order for the loan officer to get a higher commission.
5. Forgetting to confirm whether the final fees match the low preliminary estimates you were promised.
Anybody else wish to throw in their two bits of "If only I had known" advice?
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This blog entry currently has 5 comments posted.
Marie
Here are my mistakes - 1. Paying points when you only plan to live there for 5 years or less, 2. Believing that the loan officer is some sort of "expert", he's just a smooth talker that puts car salesmanship to shame
FlimFlam
Cool post, here is why it's so easy for lenders to scam borrowers:
1. They found their "dream" home, and they are now emotionally attached - all objectivity goes out the window. Remind yourself that this is a business transaction, nothing more.
2. All those little fees add up! The lender is going to try to throw in stupid stuff like unnecessary warranties, superfluous property insurance and even life insurance for your children for god's sakes. The bottomline is that if you are paying $1 million for a condo in downtown, you're now thinking, heck, what's another $500 for coverage I "might" need? Just get the loan, NOTHING MORE
Quinn
Great posts everybody! Buying a condo in downtown LA is no different than a home in Pasadena, all the same rules apply to your loans - find a trustworthy lender and stick with them.
mitch_LA
I would also add that borrowers really need to understand what the terms mean: ARM, Interest-Only, Option-ARM, etc.
When buying that penthouse at the Roosevelt in downtown, don't just look at your monthly payment, but pay attention whether that payment amount changes 6 years from now. Los Angeles is experiencing a building boom I haven't seen in a long time, and I believe a lot of borrowers are going to be in trouble when they buy that dream loft at EVO or LUMA.
Dave
Top 7? You only have 5! Does that mean we're supposed to add the other 2? Ok, I'll bite.
1. Assuming that it's always better to buy than rent. Lenders are always telling you "buy now, interest is at record lows. You're going to miss the boat!"
2. Assuming that if you get in over your head, you can always sell the home and solve your mortgage problems.