It's an exciting time - you've found the home of your dreams, you've been approved for a home loan, and there's only a few formalities left before it's yours. Then a huge wad of papers you need to sign arrives, and all of a sudden it seems a lot harder. Reading mortgage documents isn't like reading a good novel - it's boring, tedious and often full of legal jargon.
Chances are that you'll sign the documents, get the loan, buy the house - and everything will be okay. But what if it's not? What if something goes wrong further down the track, and all of a sudden you discover some very nasty clauses in the fine print? Maybe if you'd found them upfront, you might have been able to change them, or at least been aware of what could happen, and saved yourself a lot of heartache.
I've bought a lot of houses in my time, and in some ways that's worse than just buying one - I sometimes get a bit lazy, and think that all mortgage documents are the same. Well, I've learnt now that they're not. I had one loan that I was considering refinancing, because the rate was high. I'd been having some trouble getting finance at the time I first took out the loan, and had gone with a new lender. I wasn't happy with the fact that I was paying $25 a quarter "loan management fee" and $250 annually as a "package review fee". Talk about giving the lender money for nothing - they've never reviewed my loan except to put the interest rate up!
Imagine my surprise when I finally took the time to read the loan documents more carefully, and discovered that if I refinanced the loan or sold the house within 5 years, I was up for some really steep penalty fees. The loan at the time was for just under $130,000 - and it was going to cost me almost $10,000 to break the contract. Ouch! This was an investment property, which means I'm more likely to sell or refinance than someone buying his or her own home, so fine print in my home loan that makes it so expensive to break the contract is not a good thing for me. Needless to say, I'm still with the same lender and still grumbling every time I pay the $250 package review fee. Only a couple more years to go though!
The bottom line is this - make sure you know what you're signing. If reading the fine print just leaves you confused or unable to understand what's being said, then take it to your legal adviser. Never, ever sign home loan documents "on the spot" - you should always take them away and read them thoroughly. If you have questions, ask them. Yes, buying a home is expensive enough already - but believe me, the small cost involved in having a legal professional explain the contract is worthwhile, if you can't work it out for yourself. You should never sign anything you don't understand.
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