Loan Questions

Mortgage Answers

Loan Questions How can I protect myself from dishonest lending practices, such as misrepresentation of mortgage terms?

Both federal and state laws protect borrowers. Many states have increased protection because of the current mortgage crisis. Familiarize yourself with the basics of lending laws by finding out what is prohibited, then read every document carefully that the lender gives you. Predatory lenders often mislead customers by saying one thing and then putting something different in the contract.

What is escrow?

The lending company, in order to protect its investment, must make sure that the property is adequately insured and that all property taxes are paid. To do so, it will require monthly payments into an escrow account that are used to pay taxes and insurance premiums when they come due. An escrow account is simply an arrangement where a neutral third party (an escrow holder or escrow agent) oversees money in an account until certain conditions are met. The escrow agent is directed to withdraw the funds when taxes or insurance premiums are due.

Should I hire an attorney to help me when buying a home?

Not everyone can afford an attorney, especially when buying a home. However, it is a good idea to have someone looking out for your interests. If costs are a concern, consider having an attorney with you only at closing so he or she can review the mortgage contract and any other documents.

What is RESPA?

RESPA stands for the Real Estate Settlement Procedures Act. It is a federal law that requires lenders to disclose certain information throughout the lending process. For instance, at the time the borrower completes the loan application, the lender must give the borrower a good-faith estimate of all costs involved in the upcoming transaction. RESPA prohibits the lender from engaging in certain activities, such as obtaining unearned fees. RESPA also limits the amount a borrower may be required to put into an escrow account for taxes and other charges.

I think I am a victim of predatory lending. What should I do?

If you think you are a victim of a mortgage scam, contact an attorney or your state’s attorney general. Predatory lending is illegal.

What should I do if I receive a Notice of Default?

Immediately contact your lender if you receive such a notice. If your state allows redemption rights, you still have a chance to save your house before it goes into foreclosure. Other options are available, such as selling the house yourself or handing over a deed in lieu of foreclosure. It is wise to talk to an attorney, who will explain your options and help you decide what’s best.

What is a deficiency judgment?

A deficiency judgment is a judgment against a borrower when the foreclosure sale did not bring enough money to cover the outstanding debt on the loan. The lender may go to court to enforce the judgment, which can put a significant strain on your ability to obtain any kind of credit in the future. All states have laws governing how creditors may collect on a judgment, such as putting a lien on the borrower’s property or garnishing his or her wages.
What is an origination fee?

An origination fee is a fee paid to the bank that provided your loan that covers the costs associated with creating and processing the loan. In essence, it pays the lender for establishing your loan.

What are points?

A point is 1 percent of the mortgage amount. When you pay “points,” you pay interest in a lump sum in order to get a lower interest rate. Thus, the more points you pay, the lower your interest rate will be. The main thing to consider when deciding how many points to pay is how many points you can actually afford and how long your mortgage is. The longer the mortgage, the better it will be to pay the points at closing because you will benefit from the lower interest rate over a long period of time. Check with your lender and/or attorney for additional information and advice.

What is personal mortgage insurance?

A lender requires personal mortgage insurance in case you default on your mortgage payments. Lenders usually require this insurance only if your down payment is less than 20 percent.

What is amortization?

Amortization is the process of paying down on a loan. The terms are set, in this case, when the mortgage contract is signed. Depending on later circumstances, a lender can change how the loan is amortized, such as lowering the interest rate or stretching the payments over a longer period. One important note regarding amortization is that the majority of payments made early in a mortgage go toward interest. Thus, it takes longer to pay on the principal and, consequently, longer to build up equity in the property.

What is a VA loan?

A VA loan is a loan that helps military personnel obtain financing. There are certain requirements, such as honorable discharge and a minimum time of service. VA loans require no down payment.

Last update: Oct. 29, 2008

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