With mortgage loans being one of the most expensive things anyone will finance in a lifetime, borrowers are bound to make nervous mistakes along the way. Some of these mistakes are worse to make than others, but in the end you may end up paying thousands of dollars in unnecessary costs over the life of the loan. Here are five common mistakes first-time or repeat buyers make:
1. Not Shopping Around
Avoiding making comparisons when shopping for a home or mortgage is a common but devastating mistake. Going with the recommendation of a real estate agent, realtor, a neighbor or another credit source can be a helpful way to start, however in the end your own research is going to be the best source of information.
Getting at least 3 to 4 quotes from reputable mortgage lenders is a crucial step in the home buying process.
2. Getting a Loan That Doesn’t Suit Your Needs
These needs should cover all short and long-term housing goals. If not done right, mortgage shopping can be just like buying a service that was identical to another, but ended up charging more in the end. There are so many components to look at when deciding on a 30-year or 15 year fixed mortgage (FRM) compared to an adjustable-rate mortgage (ARM). Comparing federal loans with private loans, or even jumbo loans can be a long process too.
Even if you know you do not want to gamble with a jumbo loan, every borrower will be attracted to certain aspects of either a federal or private loan. FHA loans for example come with lower interest rates and minimal down payments, which is why lenders make up for it with the mortgage insurance premium. A new rule recently enacted even made it possible for borrowers to be tied to mortgage insurance for the entire life of the loan.
Going back to a FRM vs. an ARM, it all might depend on how long you plan to remain in the home. Interest rates on an ARM may be lower at first, but they are always subject to increase following the initial payment period.
3. Ignoring Everything but the Interest Rate
Mortgage interest rates are important factors to consider when mortgage shopping, however are not the only variable to consider. Even if you found the lender that offers the best interest rate you can find, all of that hard work you put into searching will be for nothing if their service is lousy. Besides the notion that the fees with them might be higher, a lousy business model may keep you from closing on time. In an ever expanding market where competition is the norm, most sellers are selling to the highest bidder these days. If you miss any deadlines because of the lagging of a bad lender or even agent, you may lose the house of your dreams and your entire mortgage application process may be trashed.
Not all mistakes are made by the lender. Borrowers, especially first time homebuyers can be notorious for making misstatements and misinterpretations. Some misinterpretations can be counted as fraud, but others just come with a large fee to pay if caught. Some common lines to avoid are:
- Fudging the numbers when it comes to your credit
- Misleading on your monthly income
- Acting like you don’t even know what type of property you are looking into
- Pretending you’re not going to rent out the property when you actually are
5. Pretending Your Credit Does Not Exist
Treating your credit as an insignificant part of the process will only land you in hot water. In reality, a borrower’s credit rating is probably the largest factor in determining things such as the mortgage rate. Some borrowers may not know important facts, such as that a handful of points added to their FICO scores can save them THOUSANDS. A $300,000 loan with Fannie Mae for example with a borrowing score of 699 can make you save less. If you can pump the score up to 700, your charge drops to 1% which will end up being $2,100 less.