When I get outside the field of real estate, I become a typical consumer where I have to ask a lot of questions just to understand what I am purchasing. I still feel sorry for the people who sold me my life insurance policy and my television set. Some of the points had to be explained to me several times before I could move forward. Homeownership is no different as there are a lot of intricacies to the financing, taxes and insurance. Just eight years ago, a plethora of loan types became available to the average consumer. Unfortunately, many of them were far too difficult for the consumer to understand. For example, there was the Power-option ARM, which contained Indexes, Margins, and Time Periods that required a financial analyst to understand what their interest rate and monthly payment would be at any given point in the future. In fact, many of these loans contained negative amortization possibilities and several payment options each month. Now if this seems confusing, that’s my point. Many of the loans were so overly complicated that the consumer couldn’t understand. All too often, the typical consumer would go back to the basics of simply wanting to know “How much cash do I need?” and “What’s my payment?”, not realizing that the payment may or may not have covered the monthly interest cost, the loan balance may be rising, and that the interest rate could change dramatically in the future.
 
Sheila Bair, Chairman of the Federal Deposit Insurance Corporation (FDIC), recently spoke to a crowd of Realtors® and said, “The loan programs of the early 2000’s have caused us great damage. We need simpler, easier to understand loans.” Fortunately, the loan market has learned its lesson and the majority of loans now are the simpler, easier to understand 30 year fixed-rate mortgage. Yes, there may be some consumers that are better served by other types of loans, but they should be the consumer that understands what they are getting.
 
So, how can you be sure that you are getting or have what you’re asking for? One tip would be to find a trusted advisor such as a Realtor® to answer the questions you may have regarding what is probably the largest investment of your life. Be sure to interview your advisors (Realtor®, loan officer, insurance agent, etc.) based on referrals from friends and family who have used them in the past. Just because they worked well with one person, doesn’t necessarily mean they will meet your needs, so see how you feel after the interview. Did they give you the respect and the patience that you needed? Your advisor should be somebody that has the respect for you to answer your questions until you understand, the experience and knowledge to answer them correctly, and in the event that they don’t know the answer, the confidence to say “I don’t know, but I know where to find that out”.
 
Another tip would be to read your Loan Disclosure Statement, or for those of you who already own a home look at your original loan documents and monthly loan statement, and make sure that you understand how your loan works. If you don’t understand it all, call your trusted advisor and ask the necessary questions. Make sure to be prepared by having these documents available for your advisor to review with you. If your current loan is not what’s best for you now, there are lots of opportunities with the interest rates so low.
 
The point is, truly understanding all the aspects of homeownership will help you to realize its many benefits for years to come. As Alan Greenspan recently stated, “Sustainable homeownership is the best way to build generational wealth”.