Signing a mortgage is one of the most consequential financial decisions most people make. The documents are long, the terminology is specific, and the closing process is structured in a way that does not encourage careful review. Coventry Enterprises LLC has reviewed enough Detroit-area mortgage transactions to have a clear view of where buyers run into problems and what they can do about it before they sign.
This guide covers the key things buyers should check before committing to a mortgage, the terms that deserve special attention, and a checklist the committee uses in its own lending reviews.
Start With the Loan Estimate
Federal law requires lenders to provide a Loan Estimate within three business days of receiving a mortgage application. This document is standardized. It shows the loan amount, interest rate, estimated monthly payment, and a breakdown of fees. The standardization is deliberate: it allows you to compare offers from different lenders on an apples-to-apples basis.
Get loan estimates from more than one lender. The differences between offers can be significant, and you will not know that if you only look at one. Pay attention to the APR, not just the interest rate. The APR incorporates fees into the cost of the loan, giving you a better picture of what you are actually paying over time.
When the Closing Disclosure arrives, compare it carefully to the Loan Estimate. Some differences are permitted. Others are not. A fee that was not on the Loan Estimate appearing on the Closing Disclosure, or a fee that increased beyond allowable limits, is a problem that should be raised before closing, not accepted because of time pressure.
Key Terms to Scrutinize
Most mortgage terms are standard. But some deserve particular attention because they have a significant impact on the true cost of the loan or the buyer's flexibility.
Prepayment penalties restrict your ability to pay off the loan early or refinance without a cost. If your loan has one, understand when it applies and how large it is. A prepayment penalty that applies for several years and amounts to several months of interest can change the economics of refinancing significantly.
Adjustable-rate provisions determine how your payment could change after the initial fixed period ends. Ask for a worst-case scenario calculation. If rates adjust to the maximum allowed under the loan terms, what is your payment? Can you afford it? If the honest answer is no, that is important information.
Points and origination fees are upfront costs that reduce your interest rate. Whether they make sense depends on how long you plan to stay in the property. A lender who is pushing you toward a high-points structure without explaining the breakeven timeline may be serving their own interests more than yours.
Compliance Checklist From Coventry Enterprises
Before Signing: Mortgage Compliance Checklist
- Did you receive the Loan Estimate within 3 business days of applying?
- Did you compare offers from at least two lenders using the standardized Loan Estimate format?
- Does the APR reflect all fees, not just the interest rate?
- Have you reviewed the Closing Disclosure and compared it to the original Loan Estimate?
- Do you know whether your loan has a prepayment penalty, and if so, what it is?
- If the loan is adjustable-rate, do you know the worst-case payment after adjustment?
- Were all fees disclosed before the closing date, with adequate time to ask questions?
- Does the loan amount make sense given the property value and your financial situation?
- Did anyone pressure you to close quickly without time to review the final documents?
- Does the lender have any undisclosed relationship with your broker or title company?
What to Do If Something Seems Wrong
If you go through this checklist and something does not add up, the right time to raise it is before closing. After you sign, your options narrow considerably. Ask the lender for a written explanation of any term or fee you do not understand. If the explanation does not satisfy you, ask for more time to review. A lender who is unwilling to give you adequate time to understand what you are signing is itself a warning sign.
For buyers who have already closed and believe their mortgage did not meet applicable standards, Coventry Enterprises LLC provides independent lending review. The committee examines the full loan documentation against applicable standards and prepares findings. Jack Bodenstein Coventry Enterprises review process for lending is detailed on the services page.
See also: Predatory Lending in Real Estate: What Detroit Buyers Need to Know for a deeper look at the specific terms that can indicate predatory lending practices.