Yes! Getting a loan these days can be scary. Even experienced borrowers have been taken advantage of by unscrupulous loan officers. Don't let it happen to you. I have five must read tips to fend off a potential loan disaster.
Before reading the tips, keep in mind there are credible, ethical, good guy (and gal) loan officers across America and they're just as mad as you are about the rats that feed off of unsuspecting people. Make no mistake; great loan officers know it is in their best interest to make sure you are an informed borrower.
Here are some things BAD loan officers do:
· Manipulate borrowers to take loans and rates that pay the loan officer more than what is agreed upon.
· Charge much more in origination using random excuses (your credit's not good enough, you can't verify your income, you're getting cash out, etc.)
· Convince people to do a loan when it's not in their best interest.
Let's weed out the bad guys! Here are the five tips...
Tip #1: Interview your loan officer
Ask for more than just rates. Bad loan officers will tell you anything to keep you on the phone -- then change the details to suit them later. Instead, make them get real with you! Ask how long they've been in the industry. Probe them about their experience in the industry. Also, ask what their opinion is on the current market and where it's going.
Listen closely. Do they have the patience to answer your questions or do they seem annoyed. Is their voice hesitant? Unsure? Pay attention to your instincts. If you have a "funny" feeling in the pit of your stomach, chances are you should move on. (More questions to ask while interviewing located in the free eBook)
Tip #2: Make sure the loan is in your best interest
Here's the deal... most loan officers are paid on commission (many on commission only). That means they don't get paid unless they complete a loan with you. The problem is "their loan" may not be in your best interest. You need to look at what's being presented and decide if it meets your needs. Some things you should consider: How much is the loan costing you? Is there a term reduction? Are you adding too much to your balance?
You should do a cost-to-savings benefit analysis. This is where you take the total cost of the loan and compare it to the benefits of the loan (monthly savings, cash out, term reduction, etc). This will help you determine if the loan is worth it to you. (See examples of cost-to-savings benefit analysis in the free e-Book)
Tip #3: Consider your loan options carefully
You may be saying, "Yikes! There are so many to sort out!" True... there are many different loans out there to consider: 5/1, 7/1, 10/1 ARMs (Adjustable Rate Mortgages)... 30Yr, 20Yr and 15Yr Fixed rates... Neg Ams, Hybrid Option Arms, Helocs, etc. But, keep in mind that each loan has its own unique purpose and function. Choice is good and it's the loan officer's job to help you find the best loan for your purpose. That's why it's important that your loan officer explains the loans they are presenting in FULL detail. Again, take notes. Ask questions until you feel comfortable with the options presented.
Tip #4: Discuss fees up front
Don't EVER let the loan officers skate past this one! People are often so concerned about the interest rate quotes they neglect to ask about the fees associated with those rates. This is a HUGE mistake because that's how loan officers get paid!
The truth is, most loan officers have access to the exact same rates sheets that everyone has. What determines the rate they offer is based upon how much they want to make on the front and back-end of that loan. (Don't miss Tip #5 to find out how loan officers get paid)
Learn how to negotiate fees. A simple way to stay on top of loan rates is to ask the loan officer how much they are willing to do the loan for overall: 1, 2, 3 points? Each "point" is a percentage point of the loan amount (1 point = 1 percent). Once you've negotiated how much the loan officer gets paid, he or she can show you how the interest rates go up or down depending on how much you want to pay up front or have the lender pay.
Tip #5: Get a complete GFE (Good Faith Estimate)
These days most people request a Good Faith Estimate (GFE), but have no clue what to look for on the GFE. Make sure you request a GFE that has ALL fees estimated and disclosed. This includes: origination points, processing, lender, appraisal, title, escrow... ALL FEES... especially the Yield Spread Premium or YSP.
YSP is also known as rebate. This is what the loan officer receives from the lender on the "back-end" of the deal for up-selling the rate. This is why it's so IMPORTANT to discuss fees up front.
For example: you may agree to pay 2 points for the transaction with the loan officer. When you look at the GFE you see 2 points for origination (exactly what you thought you agreed on), but when you look further down, you see the loan officer is getting 1 point YSP. This means they are really getting paid 3 points on the deal. That's your cue to find another loan officer. If you STILL choose to work with him you should insist that he reduce the origination fees to 1 point or reduce the interest rate to the point where there is 0 points YSP. (For more detail on YSP look in the eBook)
Don't get ripped off by your loan officer! Think of these simple tips as opportunities to keep you in charge of your loan. Refinancing doesn't have to be painful. Make sure you're working with one of the good guys!
Happy hunting and best of luck,
Brodie Rucinski
