Loan Abuses

2015 conforming loan limits Santa Clara CountyDue to the fact that Silicon Valley home buyers often don’t really know the exact amount of their loan or closing costs until they are at the closing table, there can be both the appearance and unfortunately the occasional reality of loan abuse. Although this has changed somewhat in the last few years due to both truth in lending statements and the emergence of standardized closing costs, this is an area where you must make sure you protect yourself.

One reason for these recent changes is the current competitive market. A competitive market works to your advantage if you know how to make it work for you. First, regardless of your credit, in a competitive market it pays to shop around. Look for companies that offer a locked-in rate and standardized closing costs. This will avoid eleventh-hour changes.

You are also entitled by law to a truth-in-lending disclosure that should give you a fairly accurate reflection of your loan payments and the closing costs. Although these are never completely accurate, they are a helpful reflection of the loan and fees.

If your loan is for less than $626,500 (Santa Clara County in 2015), it is considered a conforming loan and therefore you can qualify for the best rates. The conforming loan rate is always going up, and even as we go to print it’s expected to rise again in the next year. Check with your lender or bank to see what the limits are currently and if they are expected to rise soon. It could pay to wait a little while to take advantage of the new limit if you’re on the cusp, since the difference between a conforming and jumbo loan could be as much as a 1/2 percent. If you are able to purchase a home with a conforming, rather than a jumbo loan, you will save a bit on interest most of the time.  (Also check out “jumbo conforming” and “jumbo” loans.)

Another way you can protect yourself is by not just knowing who your lender is, but finding out ahead of time who will be servicing your loan. Servicing is frequently sold. Even though you pick a particular lender, after you sign the mortgage you may not have any control over the service. The “servicer” receives your payments, keeps records, gives late fees, follows up on delinquent payments and handles your complaints. Often the service you receive from these companies is less than desirable, since they have less invested in your business than the actual lender. But you can take some steps to control the level of service you receive.

If you have complaints about your servicer, you should send a written complaint, separate from your payment, to the lender’s customer service department. If they do not respond within 20 business days (as they are required to under Section 6 of the Real Estate Settlement Procedures Act [RESPA]), file a complaint with HUD or the Consumer Protection Division of your state’s attorney general’s office. Don’t just take abusive practices by servicers.

Also be aware of general predatory practices. For instance, it is now illegal for Realtors® and lenders to mark up the price of services that they don’t provide, such as appraisals and credit reports. The best way to make sure you get what you are promised is to carefully review every document before signing it. You are the customer and mortgages are a competitive market. Be sure to demand the service you deserve.

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