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Protect Yourself from Home Loan Bait and Switch

Sheryl Landrum
LoanBiz Columnist

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It happens time and time again: a few days before a borrower is due to close escrow on a new home mortgage, the home loan she thought she secured evaporates. How do you protect yourself from losing the house of your dreams and your money as well?

The day after Christmas a borrower who is due to close escrow on December 28th calls. She is in tears: her loan officer called her on December 22nd to say that the rate on her home loan had changed. Her loan was not locked in as she had been told; she'll need a few thousand dollars in points and a higher interest rate on her new home mortgage loan to close the deal. She is afraid she is going to lose her new home and she wants to know if I can help her.

While the wheels are in motion to save this borrower, I’d like to remind you of a few ways to protect yourself when looking for a new home loan.
  • Get mortgage loan details in writing! Always ask your lender for a Good Faith Estimate (GFE) and a Truth-In-Lending Disclosure (TIL). The GFE provides the cost of the mortgage loan including: mortgage, escrow, and title fees, as well as the cost for any prepaid interest, insurance, and property taxes; points paid should also be disclosed. The TIL gives you the interest rate, term of the loan, and amortization schedule as well as disclosing whether or not there are any prepayment penalties attached.
  • Get a copy of your loan lock. If your loan officer says the loan is locked he should stand by it. Have him send you documentation showing the rate and lock term.
  • Make sure you are dealing with a licensed loan officer. Unfortunately, not all loan officers are licensed. Licensed loan officers have passed state-approved classes and a state test; they also are required to take courses to keep their licenses current. If you have a problem with a loan officer who is licensed you have a lot more recourse than with a loan officer who is not licensed.
Be smart when looking for a home loan and find a reputable and licensed loan officer to help you. Bait and switch is illegal as well as unconscionable. Remember, the home and the money you save will be your own.

About the Author
Sheryl Landrum is a Senior Loan Officer with First Capital Mortgage in San Diego and Prudential Realty in Bonsall, California.

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