If you’re shopping for a house, one of the biggest favors you can do yourself is getting educated about the complicated process of applying for a mortgage. A mortgage is probably the most expensive obligation you’ll ever have, and if you don’t know what you’re doing, it’s easy to get taken advantage of.
Despite attempts at regulation in the mortgage industry, there is still plenty of room for unscrupulous lenders to make massive profits at great expense to you — we’re talking tens of thousands of dollars. Some lenders take advantage intentionally, while others are just following the boss’s orders, but either way, you’ll need to be prepared to protect yourself. You’ll also need to learn how to get the best deal possible, because it’s unlikely to just be handed to you.
If you only have time to read one book about getting a mortgage, it should be Mortgage Rip-Offs and Money Savers by Carolyn Warren. Warren has ten years of experience in the industry working for a direct lender, a mortgage broker and a wholesale lender. During this time she was also a notary public who witnessed many loan signings. Horrified by what she saw during this portion of her career, she resigned and wrote this book, which exposes the mortgage industry’s secrets with the aim of helping consumers get the best possible loans.
Not your traditional expose, the book takes the reader through the mortgage application process like any good mortgage book would. The difference is that each chapter is filled with tips on pitfalls to avoid, and those tips come from an industry insider.
Also, since the book was published in 2007, most of the information is recent enough to still be relevant (a few 2008 changes in lending practices notwithstanding, such as the elimination of no-documentation loans).
Readers learn how their credit scores affect mortgage qualification, rates, and fees and how to choose the best loan for their situations. Then, Warren explains the most effective way to shop for the best mortgage — it’s much simpler than you’d think and only involves contacting three companies.
Perhaps the most useful aspect of the book is the many images of actual good faith estimates the author received as a mystery mortgage shopper. (A good faith estimate is the document that sets out the terms of the mortgage and closing costs: what the interest rate will be, whether there’s a prepayment penalty, how many points you’re paying, what fees are required to close, and so on.) Each good faith estimate is accompanied by explanations of what is wrong with it so that readers can learn how to read these statements and what to look out for.
The good faith estimate is negotiable, and Warren explains which numbers can be negotiated and by how much. This document is also a mystery to most people, so learning how to understand one before you’re in the position to sign your own is crucial if you don’t want to be taken for a ride.
To help readers understand what’s happening on the other side of the table, the author explains how lenders and brokers make their money, what’s a reasonable amount for them to make on a loan and the outrageous amounts of money that can be made off of your naïveté.
There is also a short section on refinancing — if you got duped the first time around, this section will help you get a better deal. There are at least as many pitfalls in refinancing a loan as there are in getting that initial mortgage that puts you into a house.
Finally, there is a section called Special Topics and Unique Situations that discusses things like first-time homebuyer programs and grants, buying a condo or multi-family home, what to do if you get turned down for a mortgage and what to do if your loan doesn’t close.
In addition to being packed with useful information, the book has a very detailed table of contents, which makes it easy to skip around to the sections that are pertinent to your situation and go back and review certain areas later.
If you don’t want to waste thousands or even tens of thousands of dollars on your mortgage, read this book. It’s well worth the mere $12 it costs on Amazon (and you may even be able to borrow it for free from the library).