How to Get a Good Loan

Predatory lenders prey on people who do not know how good a loan they qualify for. Borrowers can protect themselves by doing the following:

Prospective borrowers should get a copy of their free credit report and FICO score. The higher the FICO score, the better the loan a borrower can get. Anyone with a low FICO score should learn how to improve it.

Shop for a loan like any other major purchase. It's impossible to know how good a loan a borrower can obtain until they have at least three or more quotes. Be sure to compare the interest rate, points and fees.

Also, look at the loan terms and fees. It should be easy to tell which ones are "predatory." Choose the best loan with the lowest interest rate and fees.

Sub-Prime Loans - Lenders consider anyone with poor credit to be a high-risk borrower. The higher the risk, the higher the interest rate a borrower will be asked to pay. While lenders will not offer the best loans with the lowest rates, a borrower may qualify for a sub-prime loan.

A sub-prime loan has a higher interest rate and fees than prime loans that are offered to homeowners with a good credit rating.

Borrowers should think of high interest sub-prime loans as being merely a short-term solution that can be replace with a better loan once the borrower's credit rating improves.

Typically, sub-prime loans have: high interest rates and fees; monthly payments that may only cover the interest and do not reduce the principal balance; balloon payments that have a large payment due in one lump sum at the end of the loan; adjustable interest rates that can increase the amount of the monthly payment; prepayment penalties if the loan is paid early, even if it is to refinance the loan for better terms.

Most banks, credit unions, and loan brokers charge points and fees, but loan charges are negotiable, and will vary from lender. Before signing, be sure everything that was promised is in writing on the loan documents. Review the loan documents carefully. Make sure it lists the interest rate and monthly payments that were promised.

The Southland Regional Association of Realtors is a local trade association comprised of more than 12,000 members serving the San Fernando and Santa Clarita valleys. SRAR is one of the largest local associations in the nation. Go to www.srar.com to search for every home listed for sale in the San Fernando and Santa Clarita valleys.

By David R. Walker, Southland Regional Association of Realtors®