Mortgage Mistakes
by Credit.com
Prepayment penalties, pre-approvals, and home inspections can all make a huge
impact on your homebuying experience. Luckily, with a little research and
awareness you can avoid making common mortgage mistakes.
In this article we show you the top five mistakes buyers make:
1. Not doing any research – Before you decide if you
are ready to buy a home, you should sit down and do some basic research. Look
at housing
prices in your area, calculate your
mortgage options, and check your credit
scores. Evaluate your strengths and weaknesses as a borrower. Calculate
how much you can really afford to spend on
a home before you start to shop. Look for special programs (such as first-time
homebuyer offers) that can help you save on your home.
Don’t rely on your real estate agent, lender, or attorney’s advice.
It’s more common than you would think for these experts to have inaccurate
information. Educating yourself about the home buying process can
help you save thousands of dollars. With free tools and information readily
available online, you can easily prepare yourself to become a homeowner.
2. Getting pre-qualified instead of pre-approved – A
pre-qualification letter from a lender is just an estimate about how much
you may be able to borrow based upon a limited amount of information. Instead
of being pre-qualified, work with a lender to be pre-approved for a mortgage
based on your actual financial standing before you start to shop for homes.
Being pre-approved can streamline your shopping experience and improve your
negotiations with sellers.
3. Not asking about hidden fees – Unethical lenders
may include costly fees and terms in the fine print of loan contracts. Fees
such as pre-payment penalties are used by lenders to take advantage of borrowers.
Be sure to closely read the “Truth in Lending Disclosure Statement.” Lenders
are required to provide this statement that includes information about your
mortgage fees. Ask questions about any items on this disclosure that you do
not understand.
4. Skipping a home inspection – Always arrange for
a home inspection before you agree to buy a home. Home inspectors will look
at the home’s heating, plumbing, and electrical system as well as the
foundation, floors, walls, ceiling, and basement. At the end of their inspection,
they provide you with a report of their recommendations and repairs. A $200-400
inspection could potentially reveal serious problems with the home that need
to be fixed before the purchase or that could invalidate your purchase offer.
5. Not being prepared for closing costs – Many borrowers
are so focused on finding a home and getting a mortgage that
they forget about the closing costs. These costs (usually 2-7% of the home
price) add up to $3,300 on average. Closing costs include lender, attorney,
inspection, tax, and title fees. Avoid closing cost surprises by working with
a lender who provides you early on with a good faith estimate of the closing
costs. Make sure you have this money available so you don’t start your
life as a homeowner on rocky financial footing.
Read our homebuyer
boot camp article for more tips and information about buying a home!
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