What to Look For in Mortgage Documents Before Signing
When looking to buy a house, people may be overwhelmed with the documents to review and sign before closing. When it’s down to the wire and you are closing on a home, it is possible to overlook the details of documents like your mortgage. These oversights may have large ramifications down the road, so it’s important to be careful. Here are a few things to be aware of when looking through your Mortgage documents.
Home Mortgage Documents
A mortgage note is a document, about 10 pages in length, that includes fine print about the terms of your mortgage. There are two terms one must be familiar with in a mortgage note.
1.Pre-Payment Pentalty
A pre-payment penalty is a fee that occurs when a mortgage is paid off early. This fee is meant to make up for the interest that the lender loses when the life of the loan is cut short. It can range anywhere between 1-3% of the whole mortgage, which can amount to thousands of dollars.
You can and should seek to have this removed from your contract, especially if its inclusion is not explicitly disclosed to you in advance.
2.Adjustment of Adjustable Rate Mortgages
It is wise to avoid adjustable rate mortgages all together and take advantage of fixed-rate mortgages instead.
If you are considering an adjustable rate mortgage (ARM), it is important to be aware of how much your loan adjusts when it becomes adjustable. It’s common for ARMs to become adjustable after five years. If you don’t know how much your loan changes, it could rise out of your range of affordability.
You can find the adjustment rate or mortgage rate in your mortgage note, often on the second page. The rate should be between 2.5-3%. If it is higher, have an attorney help you negotiate the rate. Keep in mind that just a 1% difference may cost you thousands of dollars.
3.Closing Documents
There are a few vital provisions to consider before signing the documents at a real estate closing. Here’s what to look out for:
Comparing Closing Statement with Good Faith Estimate: You will be gicen a closing statement at least 24 hours before closing. This should be looked at side by side with a Good Faith Estimate. Make sure to keep an eye out for fees including mortgage origination fees, appraisal fees, credit report fees. If the numbers don’t match, you can insist they are adjusted to meet the Good Faith Estimate.
Removing “Hold Harmless Agreement” Clause: the Hold Harmless Agreement clause absolves the lending company, closing agent, and lending officer of any liability for defects in the building. This makes the buyer wholly responsible for any repairs. It is a good move to look for this type of clause and have it removed.
