Not a single Utah mortgage is right for everyone. Home loans are unique in their own ways because borrowers in the Beehive State, as well as the rest of America for that matter, are. Each financial product has pros and cons, so you will need you to meet your lender halfway to negotiate for a more favorable deal unless your credentials are spotless.
However, there are mortgages with fundamentally disadvantageous features. Some of these components may appear good at face value, but they are not beneficial on closer evaluation.
To spot a bad home loan, look for the red flags below:
No Good Faith Estimate
The law requires lenders to provide each borrower a Good Faith Estimate within three days after a loan application. This document spells out all of the charges you need to be aware of. Some of the vital pieces of information it should contain are an interest rate, an annual percentage rate, and all of the closing costs.
The purpose of a Good Faith Estimate is to promote transparency in the part of your lender and to help you make an informed decision before you move forward. If your lender refuses to provide you one, take your business elsewhere.
“No Money Down” Requirement
Zero-down home loans were some of the factors that helped form the housing bubble in the United States over 10 years ago. If you did not know, this economic disaster led to the worst financial crisis since the Great Depression.
Millions of American families lose their homes since they were able to take out mortgages they could not afford. After property prices dropped continuously, they suddenly had negative home equity. When they could no longer pay their mortgage bills, they faced foreclosure.
Paying no or little down payment can be convenient, but it increases the amount of your loan and keeps you from building home equity fast. If your property depreciates, you might find yourself underwater, owning more than what your house is worth.
Ideally, you should pay 20% of a property’s price up front. You might be allowed to pay less than that, but paying next to nothing will haunt you later on.
Prepayment Penalty
This feature will deprive you of making extra payments, which can help you reduce the principal more quickly and save on interest. It is typically not illegal, but it is better to find a loan you can pay off ahead of schedule without any punishment.
Bait and Switch
This tactic is when a lender changes the terms of a loan at closing. Suddenly, everything initially agreed upon are no longer on the table. It forces you to say yes to one-sided conditions and to make an emotional decision because of pressure.
A lender that employs a “bait and switch” strategy is banking on the chance that you are too excited to get a loan to ignore the new terms and that you lack the courage to walk away from the deal.
Many good mortgages are actually bad, while some seemingly bad mortgages are surprisingly good. Understand everything about the loan you want to qualify for, and use your head, not your heart, when making a decision.
