I love this time of year. The Girl Scouts are out there selling their cookies, and every year I spend at least 15 minutes agonizing between Thin Mints, Lemon Cremes, Do-Si-Dos and Samoas before usually deciding to get ‘em all. With mortgage rates so low, it’s also refinance time. So why is it that many of you will spend less time reading and signing your loan documents than I do buying Girl Scout cookies?
It’s true. I’ve always been astounded by the number of people who tell me with a straight face that they got bamboozled into accepting a new or refinanced mortgage with terms that ended up being, shall we say, less than favorable.
I wish I had a tasty Tagalong for every time that I heard somebody complain about their mortgage. Usually, the exasperated complaints center around one of these claims:
- “They never told me there was going to be a prepayment penalty!”
- “I was not informed that my adjustable rate mortgage payments could rise that much!”
- “I didn’t realize that the minimum monthly payment option on my option-ARM didn’t cover the entire interest owed!”
- “Why didn’t they tell me this was a negative amortization loan?”
- “Why wasn’t I told that I could only make the minimum payments until my principal reached 110% of the original mortgage amount?”
If you are one of those folks I don’t have a lot of sympathy for you, but I do have one question: Did you read and understand all of the documents you signed? Or did you decide to rush through the process and “scan” the documents for the sake of expediency?
Okay, that’s two questions.
But I suspect most of you would admit to rushing through the process to save a lot of time.
And why do that? Think about it: Your home is the most expensive purchase you will ever make in your lifetime. Well, maybe not for guys like Warren Buffett who buy and sell billion dollar companies like some people do beanie babies. But for us average folk, there probably isn’t anything more expensive that we will ever buy.
And because your home is the most expensive purchase you will ever make, it is also the most important purchase you will ever make with regard to your finances. Therefore, it is not hyperbole when I say that your mortgage papers are the most important paperwork you’ll ever sign. So why would you ever, ever, sign those documents without reading them in full?
Yes, there are a lot of documents to read. I recently went through the refinance process and it took me almost two hours to carefully go over 60 pages worth of documentation including, the standard warnings and notices, the promissory note, the truth in lending statement, the deed of trust and other papers. But I didn’t care because I was agreeing to terms on how I was going to pay back a loan for almost $120,000!
I know many of you have signed loan papers for a half-million or more dollars. How much care did you take in reading your loan documents? Remember, the people that draw up your loan documents are human too, and mistakes are going to happen.
When it comes time to buy a new home or refinance an existing mortgage please be sure that you:
1. Take the time to read all of your documents well before the day of signing the papers.
If you have to, read the documents in small chunks over several days. Highlight anything you don’t understand and ask your loan specialist or loan officer for clarifications.
2. Above all else, carefully scrutinize the promissory note.
This outlines the terms of your repayment including the principal borrowed, interest rate, date of first and last payment, monthly payments, late payment fees, and whether or not there is a prepayment penalty.
3. When signing day arrives, don’t let anybody rush you!
You are probably making the biggest financial commitment you’ll ever make. The people sitting on the other side of the table are getting paid to be there. Don’t worry about them. If you read the documents ahead of time, and you are certain you understand them, it is okay to scan most documents before signing. However, you should always carefully reread the promissory note again to make sure that the loan terms are accurate.
Two weeks ago, we were in the process of signing my mortgage refinance documents when I came across an incorrect figure on the Uniform Residential Loan Application that resulted in a more expensive loan than what was originally agreed to. If I had signed that document, I would have been on the hook for an additional $2000 in closing costs.
Two thousand dollars! That’s roughly 500 boxes of Girl Scout cookies.
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