Prepayment penalties, pre-approvals, and home inspections can all make a huge impact on your homebuying experience. Luckily, with a little resesarch 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 povide 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.
*As information must be tailored to the specific circumstances of each consumer, and the mortgage industry is constantly changing, nothing provided herein should be used as a substitute for the advice of a CPA, Tax Preparer or Legal Counsel.
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