Mortgage Loans: Research Before You Sign

Learn how to analyze your mortgage loan agreement before purchasing a home.

Because purchasing a house is a substantial commitment, you should take your time while signing a mortgage agreement. To begin, fill out a Home Purchase Worksheet to help you get organized. If this is your first time going through this procedure, browse around and compare mortgage lenders. Learn what they are willing to provide you. Walk away if you feel pressed.

Once you have decided on the best lender, go through your loan agreement and make sure you understand the stipulations, such as:

Is it a fixed or variable rate loan?
Can you really afford to take out the loan?
Have you been financially realistic?
Do you have enough money set up in case of an emergency?
How is your work situation? Is your employment secure (no layoffs looming, etc.)?

Throughout the loan signing procedure

Determine the sort of loan agreement you are about to sign. (It is critical that you discuss this with your lender. We now know that our economy was on the verge of collapsing because so many individuals were uninformed that they would be accountable for increased payments. This was due to their not thoroughly understanding their mortgage documents or adequately preparing themselves for a bigger financial load in the future. You should even ask your lender to take you through a worst-case scenario and explain the biggest payment you may be accountable for.) Determine if it is:

A fixed-rate loan, in which your principle and interest rate stay constant during the loan’s duration, or
A variable rate loan has a low payment for a period of time and then rises dependent on market circumstances.
What are the consequences of defaulting on your loan (late or nonpayment)? Is there a period of grace before they foreclose?
Examine your mortgage deal to check whether it contains mortgage payment protection insurance. While it might be useful, you should always read the tiny print. If you have an accident, get ill, or lose your job, the insurance will cover your monthly mortgage payments for a certain amount of time. This is just for a limited period and for a limited quantity of money. There may be a waiting time before you may get this insurance. If you have a previous condition or scenario, you may not be eligible for this insurance.
Check for any hidden costs: Look for the’mortgage account fee,’ which lenders say is used to pay loan administration expenses from start to finish.
Are there any consequences for making early payments? Are there any departure fees or administrative expenses in addition to the early repayment penalties?

Here is an example of a California Home Loan Agreement. Remember that each loan deal is unique, so use the advice above to ensure you understand what you are signing and consult with a lawyer if you have any concerns.