Exposing the Unbelievable Mortgage Ads
Despite all the honestly sincere mortgage brokers in the world today, there are so many others that are doing anything it takes to make money. Open up your local Homes Magazine. The one that's free at your supermarket. The ads are nothing short of ridiculous and they're about to be exposed.
Mortgage companies have been analyzing their sales statistics and realize this: The more applications they take, the more loans they can fund. So, they do anything they can just to get more applications. How they get these applications is what defines them. The "bad ones" resort to ads like these:
Rates as low as 1% for 30 year mortgage!!!
Any normal person born with logic would see this ad and assume appropriately that this mortgage would be 1% for 30 years. There's one important word that's missing from the heading, "fixed".
The 1% is an introductory rate that changes swiftly. These are the types of loans that investors use to buy a property and keep their payments extremely low while they look to unload this extremely short-term investment. If you stay in this mortgage for much longer, you are doomed.
The payment is negatively amortized. The payment you are required to pay is actually less than the monthly interest that is charged. Just like a credit card, your balance will continue to go up until you can afford to make double payments. A homebuyer should never want this type of loan. Leave this one to the investors.
Why do these companies advertise these awful programs to the homebuying public? Well, you called, didn't you? It's the oldest one in the book, the old bait-and-switch. After (and ONLY after) you take an application and allow them to pull your credit they say you don't qualify. They work up a much less attractive loan that you do qualify for and start the process. Ugh! Here's another one:
No Money Down Mortgage!!
When they say you don't need any money down, it does not mean you won't need money. What they are saying is that you don't need to put a down payment on the house. The mortgage company (upon approval) can finance 100% of the Purchase Price of your new home.
The Purchase Price is the agreed-upon dollar amount that the seller will sell this house for. Let's say for example the Purchase Price is $100,000. If this house is worth $130,000 it doesn't make a lick of difference. The mortgage company is ONLY going to lend you $100,000. You can't take extra money for repairs.
There are a few programs that create an exception to this rule. If you are buying a home from a direct family member or have lived in the home you will buy for more than 1 year, you may be able to borrow more than 100% of the Purchase Price. There are also some loans that go up to 125% of the Purchase Price if you qualify, but again, these are exceptions.
Let's say the seller wants $100,000 for his house and the bank lends $100,000. Well, you haven't paid the mortgage broker, title insurance company, or lender yet. You would need to pay for these closing costs out of your pocket. All these fees are detailed on the Good Faith Estimate for you.
As much as these ads confuse us, there is no such thing as a free lunch when it comes to your mortgage. You can't come to a closing table with nothing but a pen and a smile. That will not get it done 98% of the time. It is extremely common for the person in the above loan scenario to need a couple thousand dollars to close the loan.