Avoid the Mistakes - Educate Yourself
You are about to make what will most likely be the largest transaction of your life; your home mortgage. Unfortunately, many buyers do not take the time to research the fees associated with the mortgage. Researching the mortgage process takes little time compared to the dollars it could save you.
Doesn’t it make sense to become as completely informed as possible before you buy your home?
The following is designed to help you avoid ten common mistakes. Remember the right lender can help you make good, sound business decisions based on your personal financial situation.
Find a Reputable Lender
This is the most important choice you can make when starting the mortgage process. If you don’t trust your lender, you are in for a long and stressful home-buying experience.
Don’t be lured into 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 on 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, the lender may even try to delay your closing to break the “lock-in” rate. In other cases the delay may be beyond the lender’s control. Make sure to allow yourself plenty of time for closing. Delays in the process are common and everyone (builders, title companies, even yourself) is responsible.
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.
Fixed or Adjustable Rate Mortgage (ARM)
Conventional thinking is that fixed rate mortgages are better. Sometimes this is true, but not always. You will want to ask, “How long am I going to live at this property?”
An ARM can actually be a better choice if you are going to be in the home for a short time. The average length 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.
Don’t try to bottom out 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. There is nothing wrong with floating but keep a close eye on economic indicators.
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. Whether the appraiser has assigned a work order or the appraisal came in under market value, discussing a solution prior to closing will give both parties time to analyze and determine options.
Be prepared for closing costs
In addition to the down payment, you will be required to pay fees and other closing costs at the time of the final transaction. Closing costs typically range from 2-6 percent but will depend upon your situation. Lenders must provide you with a “Loan Estimate.” The “Loan Estimate” will breakdown all costs so that you may know what to expect at closing.
Lower your closing costs
Close at the end of the month. Upon closing your lender will charge you prepaid interest from the date the loan is recorded through the end of the month of your closing.
Look out for hidden fees
Check for certain miscellaneous fees such as inspection, notary, and document preparation. These types of fees can mean hundreds of dollars in closing costs. Remember that this is your money at stake. Never should you be afraid to ask for explanation of fees you are being charged.