Buying a house is the most significant purchase that most people will make in their lifetime. It's important to use a reputable mortgage broker that you can trust - don't ignore the warning signs of a bad broker. If you feel uncomfortable with your lender for any reason, then don't be afraid to fire them and look for one that will meet your needs and be more deserving of your trust. With that in mind, here are some things to look out for when you're dealing with mortgage lenders.
Be wary if a broker pushes you to borrow more than you need to or can afford. Borrowing over your limit increases the likelihood that you won't be able to meet your monthly payments, costs you more in interest, and simply lines the pockets of those you're borrowing from.
Similarly, be wary of lenders that press you to accept higher risk loans that allow you to borrow more than you can afford (interest-only mortgages and balloon mortgages fall into this category).
Mortgage companies that promise you no closing costs or points usually have bigger penalties and penalty charges built into their contracts.
Lenders should provide you with a "good faith estimate." This is an estimate of expenses related to closing costs, including inspection costs, taxes, and title insurance. By law you should receive a good faith estimate within three days of your loan application.
Similarly, you should also receive an annual percentage rate. This is the cost of your credit in relation to the amount borrowed, and provides you with a means of comparing offers from different lenders. The annual percentage rate calculation includes origination fees, points, interest, insurance, and other lender fees. The lender is required to disclose the annual percentage rate when you apply for a loan.
Be wary of companies that promise to lock in a low interest rate and then raise it later on. If this happens, find a new lender. If you do decide to opt for a locked-in interest rate, get it in writing and get a copy of the loan commitment letter too.
If your lender encourages you to falsify your application to get the loan, walk away. If they're encouraging you to do something dishonest, you can't trust that they'll be honest with you.
Don't sign blank documents, and be wary if lenders try to delay giving you copies of documents you have signed.
Any of these things can be considered warning signs, and if they happen early in the loan application process, you'll lose nothing by walking away and finding a new lender. But what if you've already spent a considerable amount of time working out the details with your mortgage broker, only to find that they show up at closing time with a different contract, or with terms different from those you've already agreed to?
The problem here is that canceling the contract may put you in breach of contract both with the mortgage lender and the seller of the home you're trying to buy. In these situations, the seller has the right to sue if they wish to. If this happens to you, it might be more prudent to try and negotiate with your lender for lower closing costs, and continue with the purchase with a view to refinancing as soon as possible.