Jeffrey Harrington's Blog
A mortgage could put you on the hook to a lender for longer than a decade. The last thing that you want to do is to enter a financial relationship with the wrong mortgage lender. Engage the wrong mortgage lender and you might enter a legally binding agreement with a company that is on the brink of financial ruin.
Why you may want to hold off on signing that mortgage
Even if the wrong mortgage lender is solvent and not at risk of steep financial challenges, there could be negative fallout. An inexperienced lender might not perform sufficient due diligence to prevent unscrupulous workers from being hired by their organization.
If they don't, your financial data could be at risk. Other reasons why you may want to hold off on signing that mortgage, especially if doing so legally binds you to the wrong lender include:
- Identity theft - Regardless of who you get your mortgage through, you'll share a lot of personal data with a potential lender. Someone at the wrong lending agency could take your information and make illegal purchases.
- Kickback schemes - The wrong mortgage lender might push you toward specific homeowner's insurance providers, home inspectors or home goods retailers. These lenders might get kickbacks off of sales that you make with these vendors.
- Non-competitive interest rates - Should the lender not have a strong balance sheet, you might get a mortgage with less than stellar interest rates. Over time, this type of deal could force you to pay thousands more over the life of your home loan than what you would pay with a lender who had a stronger balance sheet.
- Illegal contract clauses - An unscrupulous lender might add illegal clauses into your mortgage contract.
Why just getting a house is not enough
You might not have hit the bull's eye even if you found a lender to approve you for a mortgage. In fact, you might have just stepped into a business venture that could force you to pay more for your house within five years.
That may happen if you allowed a mortgage lender to talk you into signing a variable rate mortgage. If you've ever had your student loans balloon after a grace period ended or interest rates climbed, you know the pain of having to deal with an unexpected payment increase.
Misuse of your personal and financial records is another negative that might result from entering a mortgage deal with the wrong lender. At the worst, you could become a participant in a Ponzi scheme. This could happen even if you enter a deal with a relative or friend who works in the housing or financial industry.
Protect yourself by performing the same level of due diligence that a home loan provider performs on you. Check financial performance, mortgage interest rates and the types of mortgages that lenders normally go with. For example, you could find out if a lender generally takes risks with subprime mortgages. Also, and this applies to any deal, trust your gut and avoid putting on blinders simply because you want a certain house right now.