9 Common Mortgage Mistakes
You are about to make what will be the largest single transaction of your life: your home mortgage. Unfortunately, too many home-buyers don’t take the time to research the little but weighty intricacies of mortgages. Researching the mortgage process takes little time compared to the tens of thousands of dollars it could save you.
The Nine Most Common Mistakes to Avoid When Obtaining a Mortgage!
Doesn’t it make sense to become as completely informed as possible before you buy your next home? This special report is designed to help you avoid 9 common mortgage mistakes. Remember that the right loan professional can help you make good, sound business decisions based on your personal financial situation.
1. Find a Reputable Loan Expert and Get Approved! – This is the most important choice you can make when starting the homebuying process. If you don’t trust your loan professional, you are in for a long and stressful home-buying experience.
And get approved! Not a prequalification or pre-approval. Get the full underwriter reviewed conditional commitment if at all possible. You will uncover any issues and know exactly under what conditions you qualify.
2. Pricing – Don’t be lured by a mortgage company strictly by promises of low rates. Find out how long the advertised rate is guaranteed for. Make sure there is enough time to close your loan. Some companies may make these “promises” but will try changing the rate prior to closing. They may claim that your “lock-in” rate has expired so make sure you have the expiration date in writing. In some cases, it may seem the lender is trying to delay your closing to break the “lock-in” rate. In other cases the delay may be beyond the lender’s control. This situation is relevant given the restrictions under the new TRID regulations.
Make sure to allow yourself plenty of time for closing. Delays in the process are common and everyone (realtors, builders, title companies, even yourself) is responsible. You need an experienced hand who best knows how to deal with such situations.
3. Programs – You will see several programs that offer special low-interest rates. Keep in mind that they may not be the best program for your situation. Make your lender explain what programs they feel best serve your needs and more importantly, why.
4. Fixed or Adjustable Rate Mortgage (ARM) – Conventional thinking is that fixed is always better and while this is sometimes true, it’s not always the case.
The key here is to ask, “How long am I going to live at this property?” or even better “How long might I have this mortgage?” An ARM can actually be a better choice if you are going to be in the home for a short time or you believe interest rates are high and may decline. The average for how long a first time homebuyer keeps their mortgage is less than four years. In general, the longer you plan on staying in your home, the better a fixed rate mortgage will suit your needs.
5. Don’t try to pick the bottom of the market – Deciding when to lock-in to a mortgage rate can be difficult. Many people will float, trying to guess when rates have hit bottom. Unfortunately, a lot of times they will wait too long and end up with a much higher interest rate cost. There is nothing wrong with floating but keep a close eye on economic indicators. Your daily newspaper or even the nightly news can be an excellent source of information on the latest interest rate activity. As closing nears, it might be worth locking in. Again, having an experienced hand will work in your favor.
6. Negotiate problems prior to closing – It’s common for a problem to arise before closing. Waiting until closing will rarely be in your best interest. For instance, if you accept $400 at closing in lieu of the seller making a repair and after closing you find that the repair will actually cost $600, it’s obviously a poor decision. Whether the builder agreed to add an item and has not or the seller has made a repair that is not acceptable to you, discussing a solution prior to closing will give both parties time to analyze and determine options.
7. Be prepared for closing costs – In addition to the down payment, you will be responsible for fees and other closing costs at the time of the final transaction. Closing costs typically range from 2 percent to 6 percent but will be dependent upon your situation and the jurisdiction in which the property is located. Lenders must provide you with a “Loan Estimate.” This new Loan Estimate (LE) combines the old Truth In Lending and Good Faith Estimate into one disclosure form. In addition to the required LE, I provide my clients with a breakdown of all costs so that you may know what to expect at closing.
8. Close at the end of the month – When making a mortgage payment, you will be paying interest that has accrued from the previous month. Upon closing however, your lender will charge you prepaid interest from the date the loan is funded through the end of that month. One way to lower your closing cash requirement is to close in the latter part of the month. This will lower the amount of prepaid interest that you must pay.
This is not to say that a loan lock should be disregarded just to lower the cash to close. Many factors play into when the loan closes, not the least of which is the closing date in your sale contract.
9. Look out for hidden fees — Check for certain miscellaneous fees such as processing, inspection, notary, admin and document preparation. These types of fees can mean hundreds of dollars in closing costs. Remember that this is your money at stake. Never be afraid to ask for explanations of fees you are being asked to pay.
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