Don't turn homeownership dream into nightmare: Read fine print

BOSTON (9/24/07)--Borrowers who signed but neglected to read their mortgage documents--particularly the fine print--are wishing they had. The American dream of homeownership has turned into a nightmare as more consumers experience higher mortgage payments, huge prepayment penalties and painfully high fees for missed mortgage payments (Boston.com Sept. 16).

A recent HSH Associates survey revealed that only 38% of respondents actually read all their mortgage papers, and 9% admitted they didn't read any of the documents they signed (MarketWatch.com Sept. 11).

Reading, though, doesn't necessarily translate to understanding. Complicated language confuses even those who are in the mortgage or insurance business. Worse, some mortgage ads now are under attack for deceiving consumers by not telling the whole story (Associated Press Sept. 11). Some advertised low rates and payments apply only for a short time and increase substantially after the loan's introductory period, giving consumers a false impression of the true cost of their loan.

Industry experts urge home buyers to be suspicious of very low rates and payments. Ads with deceptive claims have appeared on the Internet, in newspapers, in magazines, in the mail, in e-mail messages, and in faxes. If it sounds too good to be true, chances are good you're not being told the whole story. Low rates and payments often apply only for a short teaser period.

Mortgage experts advise you to carefully scrutinize and understand four key documents during a mortgage closing.

• Truth-in-lending statement. This shows how much you're borrowing, how much the financing will cost over the life of the loan, what your payment schedule will be, what your interest rate will be, and whether there are additional costs such as points and fees.
• HUD-1 settlement statement. This outlines all the settlement costs, such as origination fees and title insurance. Some--but not all--costs listed on this statement are negotiable.
• The note. This contains important financial information, such as interest rate and payment schedule. If you have an adjustable rate mortgage, the note will spell out how your rate will adjust in the future.
• The actual mortgage document. This contains clauses and conditions that--when signed--you agree to but likely will never review. Examples include clauses on hazardous waste, required occupancy of the property and ways to communicate with the lender.

For more information, read "What to Do When Your ARM is Due" in Home & Family Finance Resource Center.

courtesy of cuna.org