Obtaining a mortgage is a major accomplishment, and should be something to celebrate. Unfortunately, however, signing the papers on your home loan doesn’t mean that it will always be smooth sailing down the line. Once the mortgage is set up, there are still a number of different factors that may come into play, which may change the status of your loan. What follows is a list of some of the details of which every borrower should be aware.
What To Know About Escrow
Many first-time homebuyers express some confusion over the role of escrow in their mortgage. After taking out a home loan, a lender will set up an escrow account for the buyer. A portion of the monthly loan payment will be deposited into this account, and will be used to pay taxes and insurance on the home. This is not mandatory, but can save homeowners the stress of being hit with a large annual tax or insurance payment all at once. Make sure to speak with your lender or loan servicer about escrow, to set up the option that’s best for you.
Effects of Divorce and Ownership Transfer
Many homebuyers are couples, and thus there are often two signatures on all of the loan documents. In fact, in some states, the law requires that both parties living in the home be listed as co-signers on the loan. In the event of a divorce, this can be somewhat of a legal headache; one spouse will need to transfer ownership of the mortgage to another, and this will involve a trip to court. While no one wants to plan for ownership transfer under these circumstances, it is a good idea to at least be aware of the state laws and legal repercussions of a divorce on the status of a mortgage.
Be Aware of Your Rights
Many borrowers are not aware that they have certain rights that will help protect their mortgage and their home in the event of any financial difficulties. For example, there are strict rules that dictate how a lender can and should contact a borrower in the event of a delinquent loan: they are not allowed to call someone at their place of employment, they can only call during certain hours, and they must state the delinquent status in a letter mailed to the borrower. There are a number of other dictates set forth in the loan agreement, so make sure you know how you are protected, just in case.
Avoiding Fraud
There are certain lenders and brokers who may attempt to take advantage of borrowers by inflating the value of a home or pocketing some of the equity. For example, occasionally a seller will work with a broker to flip a house, selling it first to a “set-up” buyer for an inflated price, who will then help sell it for an even higher price to an unsuspecting buyer. When this happens, a borrower may take out a much higher mortgage than necessary. In order to avoid fraudulent deals like this, make sure to work through reputable, licensed brokers and lenders, and avoid buying directly from an independent seller.
It can also be helpful to hire a lawyer to help navigate some of these issues. While this will add to the expense of the mortgage process, it can save hundreds or even thousands of dollars that might have been lost in a misguided, fraudulent, or poorly constructed deal.
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