There are three words that can make the difference in receiving a great loan or a bad loan from any lender: rates, terms, fees! It has been that way from day one, and it isn’t going to change anytime soon, so do your homework before any lender hands you the ink pen and says: “please sign all these copies.” Perhaps with one or two exceptions, the financial lending business is about as competitive as they come. Keywords like “promises,” “better deals,” and even “deception” are as prevalent as moss on a Mississippi tree stump. Lenders are everywhere with their hands out and palms up wanting your money. Just in the past decade, the mortgage lending business has enjoyed more ups and downs than an elevator in a 5 star hotel. So best you keep your wits about you when applying for any type of loan. And to help, we’ll open our book of “common sense” to assist you in this endeavor.
Short-Term Loans. The makeup of these types of “desperation loans” would be high interest rates, terms of one year or less, and even a pre-payment penalty charge if paid early. These lenders use names like Pay-Day loans, Hard Money loans, and Bridge or Gap loans. You’ll pay more in fees and high interest rates that could reach 16 percent or higher, but when you need it; you need it.
Banks and Credit Union Loans. These are the usual suspects that receive everyday activity and, in the long run, can and do offer the best interest rates and terms. However, not all of these lender types plays by the same rules, ergo, this may be the most difficult task you’ll run into in your mortgage shopping. Oh, they may have the same terms on the loans: think 15, 20, 30, and even, in some cases, 40 year terms, and probably the same or close interest rates, as well. But the “kicker” wearing a black mask and a smile will also have a name tag that says: “closing costs.”
The usual closing cost will consist of any other “loan related” fees like escrow, attorney, and title fees. On top of that come government fees, recording fees, and Notary Public fees. You may also have been “hit” with processing fees, application fee, and even get a credit report fee tossed in for good measure – Yikes! When the loan closes and records, you’ll also be required to pay “points” which relates to one percent of the loan amount. This fee can be offset by taking a higher interest rate, or buying down the rate for up to three years, which can be costly. Finally, here is your “knowledge parachute.” A good faith estimate – your best friend in this headache. It’s required by law and you get it prior to loan closing, so read it – twice!