Mortgage 101: Avoiding pitfalls

Predatory lending is still a threat, so buyers have to pay attention to fine print

The days of getting a home loan without proof of a paycheck or any indication of your financial health appear to be gone. But that doesn't mean the process is any less confusing or that all lenders are completely trustworthy.

"Borrowers should be taking the same care as they did two years ago," said Chris Kukla, senior counsel for government affairs at the Center for Responsible Lending in Durham. Kukla warns particularly of predatory lending practices that can saddle homeowners with more debt than they can handle.

But many potential home buyers just need help navigating the changing mortgage landscape caused by lenders trying to control the damage of the subprime crisis.

For instance, some have eliminated seller-paid down-payment assistance. Others are changing loan criteria, including credit score requirements and the amount of down payment required.

"The underwriting guidelines change on a daily basis," said Chris Corchiani, owner of DNJ Mortgage in Cary. "The loan you could do last week, you can't do today."

The key for most home buyers is to do their homework before shopping for a loan and remember that they can shop around.

For instance, Jessica MacDougall and her husband passed on the first mortgage broker they talked with about financing their Clayton home.

"[He] was very short with us on the phone," Jessica MacDougall said. "He just said, 'Let me pull your credit report, and I'll get back to you.' I got the feeling that if our credit wasn't good, he wasn't going to work with us."

They asked their real estate agent for references and started making phone calls and asking questions. They picked a broker who helped them figure out what the family could afford. "She explained everything," MacDougall said.

Ultimately, that is the most important thing when you want to buy a home: understanding what you can afford and what you're getting.

To help you on that path, here is our Mortgage 101 guide.

KNOW YOUR RIGHTS

Over the past two years, state legislators have passed several laws aimed at helping homeowners. Some highlights:

* It is illegal for a broker to receive additional compensation, such as a bonus or commission, for inflating a loan value. That includes setting a higher interest rate than the borrower qualifies for.

* An emergency program reduces foreclosures and provides relief and counseling to people with subprime mortgages who face foreclosure. The new law requires that lenders give homeowners and the N.C. Banking Commission 45 days' notice before a foreclosure is filed. It also gives the commission the power to negotiate with lenders on behalf of the consumer.

* The state's Home Protection Pilot Program has been expanded to all 100 counties. The four-year-old program tries to help workers keep their homes if they lose their jobs by providing interest-free bridge loans.

* Any home loan servicer must clearly explain certain fees to a homeowner within 30 days of the fees being charged. There is a cap on the amount of points and fees that can be charged to a loan.

* Mortgage fraud penalties are now tougher, and it's easier for prosecutors to bring charges against mortgage sellers who lie or intentionally leave out information.

BEFORE STARTING YOUR HOUSE HUNT

There are many resources and Internet sites that help borrowers understand mortgage lending.

If you are shopping for a loan or planning to soon, here are some tips:

* Meet with a housing counselor first. This a critical for first-time home buyers. It may take some time to get an appointment, but it's worth the wait. They will tell you about available programs and give you a reasonable estimate of the fees and interest you will have to pay. For a HUD-approved counselor, visit www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm.