I love this time of year because the Girl Scouts in my area are out selling their cookies. Of course, that means they’ll soon be knocking on my door — and I’ll once again spend 10 minutes agonizing between the Thin Mints, Do-Si-Dos and Caramel deLites before finally deciding to get ’em all.
Now, with the housing market still seemingly running as hot as ever, I am reminded that most folks will spend less time reading and signing their loan documents than I do buying Girl Scout cookies.
That’s a problem.
So it’s no wonder that I continue to be astounded by people who say they were hoodwinked into accepting a new or refinanced mortgage with terms that ended up being, shall we say, less than favorable.
Usually, the exasperated complaints center around claims like these:
- “They never told me there was going to be a prepayment penalty!”
- “I wasn’t 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 say this was a negative amortization loan?”
- “How was I supposed to know that I could only make the minimum payments until my principal reached 110% of the original mortgage amount?”
If that sounds like you, you won’t get any sympathy from me — but I do have one question: Did you read and understand all of the documents you signed? Or did you simply scan the documents for the sake of expediency?
Okay, that’s two questions; but in any case, I know the answer.
Time for a reality check: Your home is probably the most expensive purchase you will ever make in your lifetime. And even if it’s not, it’s one of the most important purchase you will ever make with regard to your finances. That makes your mortgage papers among the most important paperwork you’ll ever sign too — so why would you ever think of signing those documents without reading them in full?
Yes, there are a lot of documents. I’ve gone through the refinance process at least five times. The last time it took me two hours to carefully pore over 60 pages of documentation. It was all there: the promissory note, the truth in lending statement, the deed of trust, mineral rights waiver, and other papers.
Remember, the people who draw up all of those loan documents are human too — and mistakes are going to happen. So, if you don’t want to end up borrowing one of those excuses I previously mentioned, make sure you follow these tips:
Do your homework. Read all of those mortgage papers a few days before you actually have to sign 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.
Carefully scrutinize the promissory note. This outlines the terms of payment 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. As such, it’s the most important document in the entire stack.
Take. Your. Time. Don’t let anybody rush you when it comes time to sign the documents. The loan officer and her assistant sitting on the other side of the table are getting paid to be there. If you read the documents ahead of time — and you’re certain you understand them — then you can probably get away with scanning the documents. The one exception: Always carefully reread the promissory note to ensure that the loan terms you’re agreeing to are 100% accurate.
When signing the papers for my last refi, I found an error on the Uniform Residential Loan Application that specified a more expensive loan than what I had agreed to; if I had signed it, I would have been on the hook for an additional $2000 in closing costs.
Yes, $2000!
Come to think of it, that’s at least 300 boxes of Girl Scout cookies.
Photo Credit: woodleywonderworks
You must also bring the contract which you studied to the closing, and go over the contract which you are signing line by line with the contract which you studied. It is not unknown for the lawyer for the other party to insert / change things (so easy with a computer) if they are the ones furnishing the contracts. I once worked in an office where a commercial unit was being rented to a woodworking shop. There was no mention of who would pay to remove the huge amount of scrap generated by the operation. At the time the wood shop was renting the space from the landlord and the landlord was paying a tidy sum each month for the dumpster. After the agreement was made, the landlord gave the tenant’s lawyer a copy of the lease to study. Before the closing the landlord inserted a clause in the lease that the owner of the shop had to pay for scrap removal for the entire building. Comes the day of the signing (this was a five year lease with a modest rent increase every year) the tenant signed the leases handed out by the landlord without reading them. Was the tenant ever surprised when the landlord immediately canceled the trash pick up and told the tenants that the scrap removal was his financial responsibility in the lease. READ!
Wow. That’s a great story that really drives the lesson home, Karen. Thank you.
One easy way to compare a printed document to a new document is to put both pages on top of each other and hold the two pages up to a light. The text should align cleanly. Anywhere the text doesn’t align is a place where the document has likely been changed.
Never thought of that. Thanks for the tip, Michael!
Hm. We’ve closed on only one house, and this was our experience. First, we weren’t given any documents to read (they weren’t ready, we were told) until at the signing, the same day we were also sent scurrying to the bank to get about $3000 more in closing costs than we’d been told we would need. We questioned the increased costs, and they pulled out all the papers and explained why this was so, but no explanation as to how they gave us such a low, bad estimate in the first place. Second, the title office clerk pointed out what she called an error and said our mortgage payments were misstated — they were too low by about $100. We waited for almost an hour while this was hashed out on the phone with the bank, mortgage handler, etc. They came back saying the payments were correct as stated, while the clerk still insisted they weren’t, Of course, in a month we got a notice that our payments were too low, and they needed another hundred dollars each month, plus the amount we had underpaid on the first payment. The next month, our mortgage was sold and we had all new people to deal with. We tried to look at every page, we had asked lots of questions before and during, but it still was a mess. And we had built this house on a construction loan, so we were under the gun to get the mortgage all signed and done, of course. It took us a better part of a day to sign, and we still had problems.
Yikes! What a nightmare, JD. Never let the loan officials rush you into signing. I remember the first time I signed mortgage paperwork, I was raked over the coals and ended up paying a significant amount more in closing costs than the original estimate I was given. Since I was young and unwilling to rock the boat, I just sucked it up. Now I know better.
Remember … you have LOTS of leverage over the lender before you take the plunge and sign your name on the dotted line; so don’t be afraid to use it to get better terms if you feel you are not getting what was advertised.
Once you sign your name, all of that leverage is gone.
I have the mineral rights with my property!
Wow! How did you pull that off, John?
Yes you should read the documents carefully and I always do.
But seriously and realistically, what cards do you hold at that point other than walking out? That document is prepared by a lawyer who is paid by the bank, why would they write any clause in your favor? It is not like you can sit and argue with them piece-by-piece that you don’t want a pre-payment penalty or that you want to keep your mineral rights or ….?
And if you walk out, at that point, don’t you lose your earnest money? … and / or the money you paid to have the property appraised, inspected, credit checked …..
Same with utility service contracts, cellphone contracts, workplace agreement contracts, your car insurance contracts? I disagreed with atleast 5 things in my auto and home insurance policy …. but what did I finally do? I signed it.
Same with outstandingly reliable products sold by reputable companies …. have you ever read their warranty disclaimers? it is not even funny. Have you ever noticed how you are frequently on the hook for paying shipping costs and/or their liability is limited to the current price of a comparable model (not even what you paid for it)? You buy a 1500$ 200lb elliptical, you most certainly are not going to be thrilled to pay 200$ to ship it for repairs (yeah, yeah, it is an outstandingly reliable product …. but if the probability of breakdown is so low, why wouldn’t they pay for shipping or provide onsite support?). Again, I bought an elliptical from the MOST reliable brand but I was nowhere satisfied by the level of warranty it came with.
Im not advocating we shouldn’t take personal responsibility …. but Im saying that after doing it for years, I rarely (if ever) sign a contract Im ever comfortable with.
Costco’s satisfaction guarantee probably comes close ….. but Im sure even they will pull out their legal speak and have a lot of verbiage that fully protects them and denies you what you thought was a satisfaction guarantee ….
Walking out is an extremely viable strategy, Kyron. Don’t sell it short; walking is real leverage. You have to realize that BOTH sides have something to lose: The loan company spends a lot of time and money generating and vetting the paperwork. And if they let you walk they stand to lose a lot of money in future interest from the loan or, more likely, in reselling the loan. So a mutually satisfying outcome is in both party’s interest. Trust me on this.
When you consider that perspective, it makes ZERO sense to capitulate on any deal when you feel you are being screwed. Any earnest money not withstanding.
You should always read, and make sure you understand, any contract you sign, especially as significant as mortgage documents. At my last closing, my wife noticed the interest rate was higher than what had been promised and when we provided evidence, it was rectified. While you may not have a lot of leverage, and may be too far vested in the process to back out, at least you can question any differences and have the possibility of negotiating them.
Definitely! The contracts may be long but this is for 25 years worth of payment. READ!
Never be afraid to walk. Never, never, never. I’ve walked out on loan officers at banks, car dealerships, and sales people at stores. I always came out better off, and kept my self respect.
Agree … thankfully, I learned this lesson early in life. Those who are willing to walk away – and truly mean it – have the upper hand in any negotiation.
If you’ve learnt from your mistakes, its more than enough. That’s what takes us ahead.