You’ve seen many examples online, on TV, in print or in your mailbox of offers that seem to be too good to be true because they are so alluring – and they usually are too good to be true. They come from all kinds of companies, including those pushing credit cards, mobile phone service, TV cable and satellite companies – and mortgage companies.
The one thing they all tend to have in common is fine print at the bottom of the page or screen listing all kinds of details, terms and conditions. They’re the little footnotes that “explain or clarify the deal”. The purpose of the fine print is to give you the unvarnished truth behind the boastful marketing claims made about a product or service. But as most people know, these disclaimers can run for pages, with wording so obscure and ambiguous as to be almost incomprehensible. And you’ll probably need a magnifying glass to read them.
Do You Really Read the Fine Print?
While the law requires these disclosures to be “clear and conspicuous” – which means that the important terms of the deal can’t be hidden in a tiny font, the reality is most people simply do not read the fine print. In fact, New York University law professor, Florencia Marotta-Wurgler studying the behavior of people buying software online found only 1 in 1,000 actually read before buying.
Finding the Fine Print in the Mortgage Industry
In the mortgage industry, where you are dealing with potentially the largest investment you’ll ever make, it’s especially important to do your due diligence and read the fine print and conditions.
Here are some of the mortgage offers that aren’t really as good as they might appear:
No Closing Costs
One of the offers some lenders push are no closing costs. Well, you’ve probably heard there’s no such thing as a free lunch. While closing costs can differ depending on how and where you borrow your money, there are always costs associated with it, and someone – a nice euphemism for you – is going to pay those costs.
It’s important to understand exactly what the lender is referring to when they say no closing costs. If you scratch the surface of the this offer, you’ll likely see that while you may not have to pay some of the elements of the closing costs such as title search, title insurance or attorney fees but you are responsible for paying the borrower fees, for instance.
Ask your lender what you’re responsible for paying along with a good faith estimate of what you’ll have to pay at closing time.
Closing Cost Guarantee
Then there are the lender offers that propose a set time closing cost guarantee. Of course, if you examine the offer closer, you’ll see a disclaimer with verbiage to the effect of “10 days from the time the loan goes to title” or “10 days after appraisal and credit package are approved.”
When you see this in print, your natural knee jerk response is that the interest rate will remain low over the life the loan. Surprise! Some lenders advertise “low-fixed rate” mortgages that are really adjustable-rate mortgages (ARMs); the low fixed rate actually applies to just the initial term (5 or 7 years) before the rate adjusts – upward.
Many people think the product is safe because the government has given its stamp of approval. The truth is nearly all mortgages are government-backed because they are held by Freddie Mac or Fannie Mae. Be wary of any lender that boasts about the government’s involvement with too much gusto.
Read The Fine Print
You might think that a lender that invites you to read the extra-fine print must be upstanding and that it couldn’t contain something bad. Wrong again. While the fine print is there for everyone to see, it’s often so fine that you can’t read it without a magnifying glass. In fact, the Consumer Financial Protection Bureau, a government agency responsible for consumer protection in the financial sector, including mortgage servicing, found that very few focus group participants could read the fine print in magazine or newspaper ads, and none could read the fine print used in TV commercials. And as for the contents of the fine print – it often contains scary stuff.
What About Robo-Quoter Offers?
There are also quotes from robo-quoters online that may have questionable practices. If you select an experienced loan officer on the other hand that is honest, efficient and accurate, you can be sure they will help you lock at the best rate and term available for your situation when the time is right. Some loan officers might be able to provide you a better rate but if you can’t trust them to get your loan funded on time with little hassles, it probably isn’t worth it.
Your Best Consumer Watchdog Is You
When you’re spending the amount of money you are on a home, you want an open an honest process with as few surprises as possible. Take the time to ask the right questions and read the fine print. But you shouldn’t have to crank up an electron microscope to see what’s written there. If there are so many conditions and permutations, that should be a red flag.
While consumer watchdogs and government agencies, including the Federal Trade Commission (FTC) and some states have gone after lenders who intentionally use vague and misleading language in their advertising – that still hasn’t prevented many lenders and brokers from taking linguistic liberties.
It’s important to read and understand the fine print. If you don’t understand what it means, ask your loan officer to explain it to you. You can always ask your lender what the fine print means, but it’s what’s in writing that matters — not what someone tells you. The bottom line. If a lender makes you an offer that sounds too good to be true, beware!
Let’s Be Clear
At PrimeLending, we are committed to transparency and educating our borrowers to be savvy. We make it a point to provide as much as information as possible so the choices you make have context and details. Our loan officers provide step-by-step guidance so we eliminate surprises and take the complexity out of the loan process. For questions about loans and their terms and conditions, ask a PrimeLending loan officer for more information today.