Wouldn't it be great if life came with a list of things to do? Most of us have to learn life's lessons the hard way, by going through them ourselves. Home buyers are lucky that there are some well-known rules of the game that can help them avoid major problems when buying a home or refinancing their mortgage. Let's look at ten mistakes that can hurt your mortgage so you can be ready for your next one and get the best terms possible.
#1: Not comparing prices. Too many people get their mortgage from their local bank or another financial institution and never look elsewhere. Because they don't know what they could have had, they end up paying more over the life of the loan. When looking for a loan, visit at least three mortgage companies. This will make them compete for your business.
#2: Going with the mortgage broker that the real estate agent suggests. Sure, the realtor is the nicest person you've ever met, and she tells you not to worry because her friend at ABC Mortgage will take care of you. What she doesn't tell you is that she gets a kickback for recommending them. Realtors only care about one thing: making money on the sale. Most of the time, you can get a much better deal if you do your own research and say "no thanks" to the recommendation.
#3: Getting too much real estate. How much can you spend and how many square feet do you need? Don't buy too much house that you can't pay for over your lifetime. Remember that you have to worry about more than just the monthly payments. You should also think about the costs of property taxes, insurance, heating and cooling, and repairs.
#4: Making the wrong mortgage choice. A quick look at the news will show you that a lot of people have the wrong mortgage. Make sure you understand the difference between a fixed-rate mortgage and an adjustable-rate mortgage, and ask a trusted third party to help you make the right choice. Also, make sure to look at the prepayment penalties. Why should you be punished for paying off your loan early?
- Give credit. You probably already know this one, but it's important enough to say again and again. Clean up your credit and don't make any big purchases right before you apply for a mortgage. Don't buy a new car or flat-screen TV until after you've signed the loan papers.
#6: Taking out too much debt. This goes along with number 3. Don't buy a house you can't afford because you think you'll make more money in the future. Buy a house now that you can afford, even if it's not your dream home. If you make more money in a few years, you might want to buy a bigger house. Start small and work your way up so you know you can pay your mortgage and won't get into financial trouble down the road.
#7: Not taking advantage of programmes that help people buy their first home. Many people who buy their first home don't take advantage of the programmes and discounts that are available to them. Check to see if there are any local, state, or federal programmes that can help you lower your interest rate or get better terms.
#8: Incorrect information, or "garbage in, garbage out!" Don't try to trick the lender, because it won't work. Make sure you can back up everything you write on the mortgage application with proof. Also, you should never sign a mortgage document where the lender hasn't filled out every field. Make sure that both sides of the table are honest!
#9: Choosing not to lock in the rate. Rates can change as fast as you can blink. Don't wait until the last minute to lock down your rate. When you lock in your rate, ask your mortgage lender to put it in writing and spell out all the terms.
#10: Not taking into account the other "charges" that come with your mortgage. You got a great rate on your mortgage, but did you pay close attention to the other fees the lender added? Rates are important, but you should also know how much your loan will cost you in total. Read the list of charges and ask questions about each one. Sure, you might have to pay a quarter of a percent more if you go somewhere else, but when you add up all the fees, you might find that going to a lender with a slightly higher rate can actually save you money.
