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Using Ads to Shop for Home Financing
Federal Trade Commission
|For many home buyers, shopping to find the best home financing is as important as shopping to find the right house. After all, a small difference in the mortgage rate can make a big difference in monthly payments.
Many consumers learn about available credit terms for new homes from newspaper advertisements. But consumers may not know what to look for when they compare credit terms in home advertisements.
Here are answers to some questions you may have about home credit advertising.
There is no federal requirement that ads for homes provide information about credit terms. But the Federal Truth in Lending Act requires that if an ad includes certain credit terms, such as the amount or percentage of the downpayment (in a credit sale), the amount of the monthly payment, the length of the loan, or the amount of the finance charge, it also must include all of the following information:
If an ad includes any interest rate, such as the simple interest rate or rates that apply for a limited period of time, the law requires that the annual percentage rate also be advertised. If an ad says "10% financing," "the equivalent of 6%," or simply "8%," the advertised rate is probably not the
annual percentage rate. The actual cost of the credit is likely to be higher. Therefore, you should ask for the annual percentage rate and compare terms.
The annual percentage rate (APR) includes all the costs of credit; other interest rates do not. For example, the "simple" interest rate is the one usually shown on the mortgage document. It does not reflect additional costs to cover such items as "points" (fees charged when the mortgage is closed) or
mortgage insurance. If an ad does not include the APR, it does not tell you everything you need to know about the cost of credit.
Creative financing plans typically include lower payments in the earlier years of the financing plan, interest rates that can change during the entire term of the loan, or some combination of these features. Look for the following information in the ad, or ask the lender these questions:
How can I tell if the advertised credit includes monthly payments or interest rates that will change?
Phrases such as "effective rate," "adjustable rate," or "flexible payments" indicate that the credit terms may change. If you see any of these phrases in an ad, find out more about the credit terms. For example, if an ad offers a "7% effective rate," look for other information, such as the APR, to tell you the full cost of credit.
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