10 Things Your Lender Won't Tell You - Part 3

Today, 2 more things your lender won't tell you….
4."Our APR Doesn't Mean What You Think It Does."

When lenders advertise their loans, they use annual percentage rates, or APRs. The APR is supposed to help you compare loans on equal terms by combining the fees and points with a year of interest charges to give you a loan's true annual cost.

The problem is, every lender's APR policies differ. Some include their application fees in the APR, some don't. So two loans from different banks may have different APRs even though they have identical rates and points. To complicate things even more, APRs also vary depending on the size of the loan, whether it is adjustable or fixed, and on the lenders' requirements for mortgage and title insurance. Not many people understand the differences, says Keith T. Gumbinger, an analyst with HSH Associates, a New Jersey mortgage research and tracking service. "We have studied it and determined that [the APR] is fairly meaningless."

5. "We Never Met a Fee We Didn't Like."

It's bad enough being nickel-and-dimed over a checking account. ("What? A $10 charge when someone else's check bounces?") But when banks make home loans, the extra fees can go through the roof — often to the point of being illegal.

Lenders are required by Respa, the Real Estate Settlement Procedures Act, to give you a good-faith estimate of your closing costs when you hand in your application, and extra charges are a violation of the law. But some banks try to sneak them in anyway. "I've seen $150 messenger fees," says Charles Baird, an Atlanta lawyer who has represented a number of people who have sued their mortgage lenders. "I also see strange fees, like a 'jumbo warehousing' fee. Many don't refer to any real service, but I see them on settlement papers all the time. Lenders tend to be very creative when it comes to fees."

Always ask for a detailed, itemized list of your estimated closing costs when you hand in your loan application. It's required by law. Then on closing day look carefully at the figure called "amount financed" on your settlement papers. If it does not equal the principal you are borrowing, minus any points or interest paid upfront, ask your loan officer why. It could mean he slipped some fees into the amount financed and you can guess what that means: You'll pay interest on those charges.
Next time, a look at reason's 6 and 7 in this series…