September 10, 2016

Home Loan Protections

Home Loan Protections that Home Buyers Need

My name is Tom Pool. I’m an Assistant Commissioner with the California Department of Real Estate. I am the Legislative Director with the department, as well as the Mortgage Lending Activities Supervisor here at the department.

What sort of home loan terms should someone look for before signing on the dotted line?

The key to that question really is before signing on the dotted line, everybody’s situation is different. So what you need to do, just like any purchase of any big ticket item, you need to do a little due diligence and a little bit of homework. The homework isn’t all that daunting. What you needed to do is breakdown the loan in terms of terms of conditions, and in costs and expenses.

Now with terms and conditions, fairly straightforward. Take a look at the interest rate that’s being charged, whether it’s a fixed rate mortgage or an adjustable rate mortgage. The term of the loan, whether you’re looking at a 15‑year or a 30‑year, or some sort of hybrid.

The other thing that you need to look out for, is there a prepayment penalty associated with the loan? Or perhaps a balloon payment? Or where the loan is fully amortized? And probably, if you’re going to key on one thing, is how much is being charged? How much is your monthly payment? Those are the terms and conditions.

The other component in looking for a loan are the costs and expenses. These costs and expenses associated with the loan are going to be like, the appraisal fee, the escrow fee, the title insurance, perhaps a processing fee, and maybe points. Points are something that a lender charges associated with the loan and may affect the interest rate.

Once you get the basics down, then it’s time to shop. Go out there. Take a look at banks, credit unions, and even a mortgage broker. Mortgage brokers don’t lend money, but they will shop that loan for you at various sources. They also have a fiduciary duty under California law to act in your best interests.

You have choices, and you want to exercise those choices to make sure you go to more than one place before you sign on that dotted line.

One thing that you’re going to find out with each broker and each lender, they will provide you with a list of costs and expenses that’s known as a Good Faith Estimate. They’ll also tell you what the APR, or Annual Percentage Rate, is. That allows you to shop various programs and understand what the real cost of that mortgage is. So take that Good Faith Estimate, take that APR, shop before you make that decision on who you’re going to apply for.

Finally, when you get down into the signing room, make sure that all the loan documents were as represented. Are you getting the loan terms that were promised to you? Are you getting the rate that was promised to you? Are the costs and expenses aligned with what was promised to you? If they are not, you need to start asking questions, and perhaps start over.

But if you do your homework, you understand the terms and conditions, the costs and expenses, you will get the best terms that you qualify for. So, good luck.

How can a potential homebuyer protect themselves during the home loan process? What home loan protections are available?

Like anything else, if you want to protect yourself, information and education is key. You need to understand what you’re getting yourself into before you get yourself into it.

One of the first things you can do to protect yourselves, even before you talk to a lender or if you talk to a broker, pull your credit report. Find out if there’s any mistakes on your credit report, any erroneous information. You need to understand that typically, the lower your FICO score, the worse the terms and conditions. The higher the FICO score or your credit score, the better terms and conditions. And if there’s a mistake in your credit history, you’d better fix it before you apply. Otherwise, it could cost you thousands of dollars.

Understand where you fit in the picture. Are you a good credit risk? Are you a poor credit risk? Once you understand that, then you know what terms and conditions to look for.

After you take care of your credit history, start applying for loans. Again, you can go to various sources. You could go to banks, savings and loans, or you could go to a mortgage broker. Again, mortgage brokers have a fiduciary duty, meaning they have to act in your best interests.

But whatever choice that you make, make sure that you get a Good Faith Estimate along with the APR. That will tell you where you fit in the credit picture. If one lender or mortgage broker is offering terms that way too expensive or out of line with other brokers that lenders are offering, don’t use them. That’s a big red flag.

So again, going forward, make sure you get your homework done, that you use your due diligence, and take care of business before you even start the process by making sure your credit history is in order. And with that, you should be able to protect yourself against any kind of predatory lending.

What sort of resources are available to assist someone in protecting themself.

Number One, the Department of Real Estate has a wonderful brochure called “Using the Services of a Mortgage Broker.” It takes the borrower step‑by‑step through the process and what information they should expect from their lender or broker.

Home Loan Protections - Bureau of Real EstateNumber Two is licensing. There are strict license requirements for any mortgage lender or broker in order to do business. I suggest anybody, before signing up with a broker or lender to go to our website and make sure that the individual is a properly licensed broker or a properly licensed financial institution. There’s a function on the DRE’s website that will allow you to do that.

And also there’s a new requirement that just went into effect last year through the National Mortgage Licensing System. Every originator needs to be part of that system before they can originate loans. You can get to that, NMLS, or the National Mortgage Licensing System, website through the DRE, or you could go there independently just by doing a search function of the National Mortgage Licensing System. If a company or person that you’re thinking about doing business is not licensed, or is not part of that registry, that National Mortgage Licensing System registry, do not do business with them.

And then, Fannie Mae and other government agencies such as HUD have resources available on their website. And any consumer thinking about getting a loan should check out those resources and find out what’s available to them.

YouTube video posted by the Department of Real Estate on February 3, 2012.  The Department of Real Estate is now the Bureau of Real Estate.

For more information on home loan protections contact Jeff Green, REALTOR®.

More info:  VA Home Loans, Choosing a Home Loan,