Whether you’re considering a home purchase or refinancing your current loan, it can be tough to separate fact from fiction when evaluating mortgage offers. From rates and fees to strange acronyms and fine print, there’s a lot to sift through. Sometimes the offers you get in the mail or online come from companies that don’t have your best financial interests at heart.
Here’s a look at four signs a mortgage offer might be too good to be true:
Lenders might try to snag customers by flashing an ultra-low interest rate. That super-low interest rate could be legit – except it probably isn’t for the loan you think it is.
Lenders might show you an incredibly low-interest rate but obscure the fact that it’s for an adjustable-rate mortgage (ARM). These tend to feature low upfront rates that can increase over time.
ARMs can make sense in some cases, and they’re typically better suited for Veterans who don’t plan to stay in their current home for long.
If you’re focused on a fixed-rate mortgage, scour the fine print to ensure the low rate you’re seeing isn’t for an ARM.
Some mortgage offers aren’t upfront about the type of financing being offered. Veterans might not be able to tell whether it’s a conventional mortgage, a VA loan or another government-backed mortgage, or something else.
In addition, some lenders might hide or obscure whether they’re offering a fixed-rate loan or an adjustable-rate mortgage.
Make sure you know what you’re getting into. All loan types come with pros and cons, and fixed-rate mortgages are far and away from the most common among Veteran homeowners.
Beware any mortgage offer that claims there are no closing costs. There are always going to be closing costs with getting a mortgage. It’s just a matter of how they get paid.
With refinance offers, the lender might advertise a “no closing cost” loan because they stuff those costs and fees into your overall loan balance, meaning you’re just tacking them onto what you’re borrowing. That can negate the benefit of a refinance, not to mention push homeowners underwater on their mortgage.
On a purchase loan, the lender might receive a rebate for locking you into a higher interest rate than you might otherwise qualify for and then use some of that money to pay the closing costs. Veterans might be able to find a lower rate elsewhere, and you can always negotiate the payment of closing costs with a home seller.
No-documentation mortgages played a role in the housing collapse more than a decade ago. They’re much less prevalent today, in part because of regulations and restrictions that took effect in the wake of the Great Recession. But some lenders might still tout your ability to close on a loan without verifying key information.
To be sure, there are streamline refinance options out there with minimal paperwork. The VA’s Interest Rate Reduction Refinance Loan (IRRRL) is a great example. The VA doesn’t require a credit check or an appraisal for these loans.
But it’s tough to find reputable lenders that will make even streamline refinance loans without verifying some information, such as your credit score. Guidelines and underwriting policies can vary by lender, but any mortgage offer that references no-documentation requires a closer look.
Not every mortgage offer you get is a bad one. The challenge is figuring out which ones merit a closer look. Current Veterans United homeowners can always contact their loan team to help evaluate any mortgage offer they receive.
A VA loan is a mortgage option issued by private lenders and partially backed, or guaranteed, by the Department of Veterans Affairs. Here we look at how VA loans work and what most borrowers don’t know about the program.
Your Certificate of Eligibility (COE) verifies you meet the military service requirements for a VA loan. However, not everyone knows there are multiple ways to obtain your COE – some easier than others.