Before You Sign – What to watch out for:

• Use this Mortgage Shopping Worksheet, provided by the United States Federal Reserve Board, to compare different ARM’s from the same lender, ARM’s from different lenders, or to compare a Fixed Rate Mortgage to an Adjustable Rate Mortgage. This form will give you a detailed view of the cost of differing types of loans both now, and in the future.
• A quick question to weed out the bad guys: When a lender or broker quotes a suspiciously low initial interest rate and payment on a loan, ask them for the annual percentage rate (APR). An APR that is considerably higher than the quoted initial interest rate will generally mean that your loan payments will increase significantly at the adjustment period, even if interest rates remain the same. This low initial interest rate is called a “teaser rate”.
• Ask your lender, Mortgage broker, or Title officer for a copy of your Balance Sheet, Closing Statement, or Settlement Cost Sheet. (This document is called many different things by different institutions; use any of these terms and your lender, broker, or title officer should understand what you’re looking for.) By law, a borrower is entitled to review the settlement cost sheet one business day before closing on the loan – You absolutely must exercise this right and ask questions if you find something you don’t understand!
• Lenders must provide you with written information regarding the ARM mortgages that you are interested in. This information must include:
• Loan terms & conditions
• The name of the Interest Rate Index that the ARM is based upon
• The margin added to the index by the lender or broker – profit
• How the interest rate is calculated
• The period of the interest rate change
• Limits on the changes
• An example of how high your monthly payments can become
• An explanation of how negative amortization may effect you loan
• Not all adjustable rate mortgages are set up to adjust downward – ask your broker or lender about this stipulation, especially if you’re shopping for a mortgage during a high interest rate period
• Check introductory rates and periods on Home Equity Lines of Credit (HELOC) and Adjustable Rate Mortgages. Ask your lender to map the loan out precisely in a fashion you understand.
• Check for and ask about prepayment penalties
• Verify account maintenance fees and/or servicing fees
• Ask your lender, broker, or Title officer for an accounting estimate of all up-front fees you will be charged. These charges may come from the lender, title company, other third party, etc. These numbers are nearly impossible to estimate exactly, however, on signing day they should be “in the ballpark”.
• Interest Only Mortgage Options – Understand when principal will begin to be added to your monthly payments.
• Balloon Mortgage Options – Understand exactly when the balloon payment will be due.
• Construction Mortgage – to avoid an unexpected set of second closing costs, Verify whether your Construction Mortgage has one or two closings (see Construction Mortgage above).
• A couple minor additional costs not included on the preliminary closing statement due to last minute unforeseen charges and exact interest calculations should be expected. These costs should be very small and typically not amount to more than a couple hundred dollars.

Individuals shopping for a Fixed Rate Mortgage , Adjustable Rate Mortgage, or Home Equity Line of Credit should see the “Before You Sign – What to watch out for” segments at the end of each of those sections for additional items specific to those individual mortgage types.

Remember to, and I can’t say this enough, ASK QUESTIONS!! After all, it’s your money that you will be giving to them! These people are working for you; they need your business. Do Not feel intimidated, and Do Not let anyone railroad you into something you don’t understand and may deeply regret in the future. Take charge, it’s your mortgage; sure, they’re offering the mortgage to you, but you can just as easily get your mortgage somewhere else. Make sure you remind them of that fact if anyone gets “snooty” with you.

Below you will find some common charges you may (or may not) find on your closing statement. When looking at a typical closing statement, don’t be surprised if you feel as if you’re getting nickeled-and-dimed to death:

• Property Tax’s – Yuck, a fact of life
• Processing fees – charged by your broker, lender, or escrow officer. Any one, or all three may charge a fee for processing your loan documents.
• Recording fee – charge for changing your property tax information and registration of the sale with the County Clerk.
• Escrow fee – Payment for the services of the Title Company
• Delivery & messenger fees – charged by Lender and/or Broker, and Escrow.
• Copy fees – again charged by Lender and/or Broker, and Escrow.
• Email fees – once again charged by Lender and/or Broker, and Escrow.
• Title Insurance – Paid to the Title Company. More on Title Insurance can be found in the Title Insurance section.
• Loan interest – you may be required to pay the interest on your mortgage from the date of signing to the date of your first mortgage payment.
• Primary Mortgage Insurance (PMI) – required by the lender if your down payment is less than 20% – See the Primary Mortgage Insurance section for more information.
• Insurance – Required by lender – fire and/or property insurance.
• Appraisal fee – Required by lender – The lender requires a property appraisal to guarantee the property is worth the money they are loaning to you.
• Pest inspection fee – Required by lender – used to determine the presence or absence of pests detrimental to the health of the property
• Home inspection fee – Required by lender – used to determine the condition of the structure and its permanent appliances.
• Notary fees – legal registration of the documents
• Credit Report – Required by lender to determine the “credit worthiness” of the loan applicant
• Underwriting fee – a charge levied by the lender and/or broker for the time spent to determine the “credit worthiness” of the loan applicant
• Surveys & Special reports – Required by the lender to determine if there are any environmental hazards in the area of the property that may impact the value.
• Attorney fees – some states require the involvement of an attorney in the transfer of real property.
• Origination fee – often charged by the lender and/or broker in addition to the Processing fee for processing your loan documents.

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