THE ATTORNEY GENERAL OF TEXAS
Ken Paxton

Mortgages

Choosing a mortgage that's right for you can be the difference between successful home ownership and foreclosure. Take time to find a reputable lender that offers you a mortgage with terms you understand and payments you can afford.

 

Finding a Lender

The first step is to find a lender. You can use a mortgage broker or contact lenders directly. Mortgage brokers represent many mortgage companies, and the broker gets a commission if you accept a loan from one of the companies he/she represents. Avoid mortgage brokers who charge hefty up-front fees or guarantee they will find you a loan.

Once you've chosen a lender, you'll need to settle on the terms of the loan. This is important.

The terms of the loan will determine things such as how much your mortgage payments will be each month, whether that amount could go up, your interest rate, penalties for late payments, whether property taxes will be included in your monthly payments, and whether you have to pay private mortgage insurance.

Private mortgage insurance (PMI) is insurance you have to pay that protects the lender if you default on your loan. Whether the lender requires you to have PMI is often dependent on the size of your down payment. The PMI Act enables homeowners with new loans originated after July 29, 1999, and who meet specified requirements to have their PMI canceled. If your loan was issued before July 29, 1999, contact your mortgage lender about how to have it cancelled.

 

Before Closing

Sometimes property taxes, homeowner's insurance and PMI are rolled into the mortgage payment. Ask your lender whether they will be included with your monthly payment and, if so, make sure this is in the contract. Some consumers have discovered that they were liable for large property tax bills several months after closing. You can approximate the tax by contacting the county's appraisal district. Most counties provide tax information online. For brand new homes that do not have a tax record, contact the appraisal district about property taxes on comparable homes in the same area. Be sure you also understand how much you will have to pay in insurance.

Do not provide substantial sums of money before the deal is finalized. Unethical mortgage brokers will ask for thousands of dollars up front to guarantee the loan and then disappear with the money. Also, limit earnest money to a few hundred dollars and talk with your real estate agent about a termination option. A termination option is an agreement between you and the seller that will allow you to terminate the contract within a specified time frame.

 

Avoiding Foreclosure

Never withhold a mortgage payment and always make them on time. In most cases where homeowners lost their home, the problem began with a single missed payment.

Bear in mind your lender can sell your mortgage, changing where you send your payments. If they try to alter the terms of your loan without your consent, you can file a complaint with our office, the Federal Trade Commission (FTC), and the US Department of Housing and Urban Development (HUD).

Beware of scam artists offering fraudulent "mortgage rescue" services. If you are at risk of foreclosure, they may promise that they can prevent it for a fee. Instead they can speed your foreclosure by charging you excessive fees and advising you against trying to resolve your problems directly with the lender. If you are at risk of foreclosure, you should contact your lender to try and make arrangements.

In addition to contacting your lender, if you have problems that could result in mortgage default or foreclosure, you should consider contacting a HUD approved counseling agency. You can find an approved counseling agency in your area by calling (800) 569-4287 . You can also visit HUD's website at www.hud.gov/foreclosure/index.cfm and www.hud.gov/faqs/faqforeclose.cfm for more information about how to avoid foreclosure.

You can also contact the Homeowner's HOPE Hotline at (888) 995-HOPE (4673). The HOPE Hotline is operated by the Homeowners Preservation Foundation and Neighborworks America, two national nonprofit organizations that specialize in mortgage issues.

 

Mortgage Fraud

Mortgage fraud is a criminal offense and primarily involves fraud against mortgage lenders. Generally speaking, it occurs when facts are misrepresented: the value of your house inflated or the lender misled about your income, credit history or financial situation. Your identity can also be misrepresented.

The fraud can involve the mortgage broker, real estate agent, appraiser and/or the buyer. The result is you borrow too much money, and your house is not worth what you paid for it.

If your finances get exaggerated you are more likely to fall behind on your mortgage payments. It will also be difficult to sell an over-valued home for enough money to cover your mortgage balance.

 

Complaints

If you have a complaint against your lender, contact our office, the FTC, HUD and the government agency that regulates your particular lending institution. Most mortgages are provided by traditional mortgage companies. In this case contact the Texas Department of Savings and Mortgage Lending. If your lender is a national bank, contact the Office of the Comptroller of the Currency. The Texas Department of Banking may be able to help you determine who regulates your lending institution if you are unsure.