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Lenders To Avoid For Your First Time Home Buyer Loan
By EchoBay Loans Staff Writer

When you're buying a home for the first time, you may feel quite vulnerable when it comes to finding the right first time home buyer loan. While it's probably not as nerve-wracking as buying your first car at a used car lot, it does seem apparent that the cousin of the guy who runs the shady local used car lot is offering to finance your home at too-good-to-be true rates and with less-than-ethical practices.

Wherever there's a transaction with lots of money involved, it's more than likely that the sharks who want to take advantage of you are swimming somewhere nearby. Since your first time home buyer loan is going to be one of the largest transactions you are ever involved with, it's important to make sure that you get the best deal possible and that you avoid excess and unnecessary costs that are involved with obtaining a mortgage.

So how do you know which lending services to avoid? There are some telltale signs that should raise red flags the moment you encounter them. When this happens, walk away and find another lender. The first sign is rates that are too-good-to-be true. While it would be nice if a mortgage company were really willing to provide you an interest rate that is extremely lower than everyone else's rates, it's just not likely to be legitimate. These companies are not in this business out of the goodness of their hearts; the goal is to make money, and if the rates advertised seem astronomically low, chances are there's a reason.

If you do want to try using a lender that is advertising extremely low rates, make sure they put everything in writing. If a lender isn't willing to put their promises in writing, then you're obviously not being given the entire picture or there is something that they are trying to hide. If a lender is honest and legitimate and plans to follow through on the promises they are making, they should have no problem providing you a written statement testifying to that fact.

Another thing that many first time buyers don't know is that a lender is required by law to provide them with a good faith estimate. This good faith estimate will include items like your anticipated closing costs, processing fees, points, and your monthly principal and interest payments. If a lender does not provide you with this estimate within a few days after you've made your application, it should be viewed as a warning sign. Contact the lender to see where the estimate is, and if it hasn't been prepared, look elsewhere for your first time home buyer loan.

When you receive your good faith estimate, if you discover any inflated fees or fees that you do not understand, ask the lender to explain them. While many sub-prime lenders will charge very high processing and application fees, not all lenders do. If a lender charges unusually high up front loan fees, it can be a sign that they are less than credible. If the lender you are thinking about working with wants to charge you these fees, you will want to call other lenders to compare those fees to make sure that they are within reason. Some of these fees serve no purpose but to line the pockets of the lender and/or broker.

It is also important that you understand all of the fees associated with the mortgage, including any potential prepayment penalties that you may be responsible for. If you want to refinance your home in the future, a pre-payment penalty on your existing mortgage can really put a damper on your plans. Make sure that your lender shows you in writing that there is no prepayment penalty associated with your loan.

Other warning signs that should signal red flags include a lender who requests you to lie on your mortgage application, a lender that tries to push you into a mortgage payment that you can't afford, or a lender that promises one thing and then the documentation you are provided states another. While not all mortgage lenders are out to take advantage of you, there are those who will. By following the above guidelines, you'll be able to tell the difference between the two and will be able to make an informed decision when it comes to choosing the right lender for your first time home buyer loan.

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