Do You Really Know Your Mortgage?
Why do You sign loan documents without reading them?
I'm going to use my experiences of being a homeowner because I don't want other homeowners who aren't happy with their loan to think I am bashing them. I'm not bashing. I'm just using my stupid choices in the past to show you what NOT to do before you buy a home.
And well, if you are already in mortgage hell then I will happily give you some hope in that too.
I have owned three homes, and one piece of land. My first home was a $27,000 double wide. It was under 1000 square feet, and the only reason my first husband and I got it was because in reality, we were lucky to afford that. He already had a piece of land paid for so we used that as collateral for a down payment for this dinky trailer.
There's nothing wrong with owning a double wide if that is what you want. We had a low, fixed interest rate and very low payment of around $354.00 a month.
Oh how prices have changed! (I'm almost giving my age here)
I never reviewed the loan documents on the day of closing. I signed. We got the keys. I was giddy with joy. That was the end of it.
Looking back now, we could have gotten a variable rate mortgage with a high interest and been screwing ourselves ten times over when the payment skyrocketed due to the market fevers. But luckily, we got a fixed rate.
Years after that, we moved to an actual house in the city. We had no down payment and maxed the loan out to the limit of what we were approved. It was an adjustable rate mortgage, so the payment went up every few months it seemed. We were responsible for our own taxes and insurance, which was a nightmare.
It was hard coming up with a large wad of money all at one time to cover a years worth of taxes and insurance. By the way, if you live within city limits your taxes are higher. Think about that for a minute.
Years later it wasn't until after we divorced, and I got back into credit and mortgage collections that I realized how naive I had been as a homeowner. We could have made sure taxes and insurance was included in the mortgage, but with both homes we never did.
It was never explained to us by the bankers and mortgage specialists that with an escrow we would not have had to fret over coming up with a large amount of money for insurance and taxes.
However, when I was in Mortgage collections, I found out that even with an escrow your mortgage payment can still go up. Why? Because if your taxes go up, your mortgage holder will adjust your payment to make the difference. So in reality you are still paying for everything, but a higher amount, just on a monthly basis.
So if your taxes are generally $1200.00 a year, and they go up to $1550.00, then expect that difference to be divided between the year and you be expected to pay a higher mortgage payment. New government regulations stipulate that now homeowners must have at least two months of escrow ahead to cover the taxes and insurance when they are due.
Don't think you owe that? Signed a contract, did you? Yea, I heard all the arguments from customers. Like this one: "I have a fixed rate mortgage! This is against the law you can't raise my payment!"
You also signed a clause in the mortgage agreement explaining to you about the escrow. Just because you have an escrow doesn't mean crap. If your taxes and insurance premiums go up, and you have an escrow with your mortgage, then your payment goes up too.
You are responsible for your own taxes and insurance on the property, and the mortgage company isn't. It was just nice for them to put those in escrow for you and spread that payment out over a year instead of you coming up with a whopping sum at one time. Wasn't it?
I hated how none of this was ever explained to me until years later and I was on the battlegrounds in mortgage collections learning the in's and out's of mortgage terminologies, regulations and investor guidelines.
But by then, it was too late. I had already been through a chapter seven bankruptcy and foreclosure with my first husband. Knowing what I know now, we could have saved our property and sold it to save our credit too. But nothing was explained to us young whipper snappers.
Which brings me to the next concern: Why do home buyers sign loan documents without really reading them?
Keep reading and I will show you why...
Reasons why we sign those closing documents without really reading them and other mortgage truths...
1. Because the terminology reads like it was written on Mars with some looney toon attorney in legal jargon. Let's face it, unless you are an underwriter, technical writer, mortgage specialist or property attorney you will flat out not understand what the hell is in those terms. But you should ask questions and read them anyway.
2. Time is not on your side and you must hurry and sign, because the moving truck is waiting. I get it. You are flat out excited about getting your own space for your own stuff and those keys to your own front door.
3. You can handle the payment, even though it is due on the 1st of every month. Let me make this perfectly clear: the Bank I work for always schedules the payments on the 1st of every month. No, you cannot negotiate before closing when you want your payment due unless you have an underwriter really on your side. The bank sets the payment due date, not you. If you haven't made that payment, then by the 3rd our auto dialing system will call you and give you a gentle nudge from our mortgage collections department. Think you have until the end of the month to pay? Wrong! Your payment is due on the 1st, on the 15th you get a late fee. If you are 20 days late, you are considered borderline delinquent and will get repeated calls from collections to try to get a payment from you. Our goal is to NOT have you report to the credit bureaus as being 30 days late on the mortgage. But if you had of read the loan closing documents, you would already know this.
4. You actually think your mortgage holder will not foreclose if you fall months behind. Lie. Wrong. You are so wrong. In reality, the investor of the mortgage decides when it is time to take the property back you can't pay for. The investors call the shots. Your mortgage company can send you a pre-foreclosure notice if you are 45 days late. And if you are months behind on your mortgage, the investor will look at the economics of your zip code and market. If your town is booming and houses are selling then guess what? You gonna lose your house unless you pay all due and legal fees to get it out of foreclosure. But if you are in the country somewhere in the middle of nowhere, then the investor may do whatever necessary to work with you to keep you in the home. It is true that depending on market value and housing economics it would cost more to put you into foreclosure than it would to take your home. Either way, if you get a letter of pending foreclosure the mortgage company still has hope for you to keep your house. They really do not want it. It may not be pleasant, but it depends on your finances too. If you don't want to keep your home, then you will lose it and a foreclosure, short sale or deed in lieu stays on your credit up to 10 years. Think about that.
I've given you 5 reasons why when it comes to your mortgage. There are many more I will write about in another article. I hope you think twice before signing and really look at those loan closing documents. Your mortgage is the most important debt you will ever have. Don't screw it up.