Lots of buyers find that their mortgage is the biggest expense they’ll have monthly, but most buyers do very little to no preparation and shopping around to find the best possible deal. A buyer could end up paying more money for their loans than is actually needed. Here are five huge mistakes that are made when getting a mortgage.
Don’t Trust Advertised Rates
Unless you have 100% perfect credit, advertised rates are extremely unrealistic. To get a rate that good you would have to pay for points at a price of 1% of the total loan for each.
Your lender will be going through your credit history very closely to find anything that could possibly raise your rate, including qualifying you at the start of the transaction and then running your credit again a couple days before you close the home loan. If anything has changed in your debt-to-income ratio you will not be getting low rate you were wanting.
Loan officers work that for banks or savings and loans and are only able to offer you the loan packages that their savings and loan offices or banks offer. A mortgage broker is able to prequalify you just like a loan officer can and they can look into different deals from different lenders.
It doesn’t matter if you choose a mortgage broker or a loan officer because either way you’re going to have to share your personal financial information in order to get an accurate rate. The majority of brokers will show you which credit unions and banks have offered what so you can pick the loan you’d want the most.
If you’d rather shop around yourself, try visiting a savings and loan or a credit union or your bank, but remember that unless you give them access to your personal financial information and the permission they need to run your credit they won’t be able to give you a correct rate.
Pay Attention to the Terms
Even the rates that are advertised for people with perfect credit the price you see advertised is not the price you’re going to pay. The actual cost of the loan is the APR or the annual percentage rate and that will include fees from the lender.
Understanding loan terms can be extremely difficult. There are various ways lenders can find to increase your fees. An origination fee loan, also known as a processing fee, is what pays the loan officer or mortgage broker so this fee can differ widely in price. One mortgage broker may charge more for pulling your credit than others might. Everything will be in your good faith estimate which you will get after you’ve applied for the loan. Terms are negotiable so don’t be concerned about asking for the meaning of any fees or asking if they can be lowered or removed.
Don’t Wait too Long for a Better Rate
Lower rates are great but you don’t want to lose your perfect home over twenty five percent of a point in interest. No matter what your interest ends up being you’re going to be paying thousands of dollars in interest up front before you can start to make a serious advance in equity.
Try not to focus on your percentage rate and start work on building your equity as fast as you possibly can. Try to pay a little extra every month or make an extra payment every year. This will help you compensate for your rate. If your rate drops over the years, you can refinance but it’s not the best solution. You’ll have to pay loan origination fees and title search fees and those could easily add up to the same amount of money you spent on closing costs to start with. You’ll also be restarting the amortization schedule with your all of your payments going towards interest instead of the principal.
Pick the Right Type of Loan
The loan you choose will depend on how long you are planning on staying on the market and what the market conditions are and not by how much money you’ll need for your home.
The market as it is favors fixed rates because of rising rates from all-time lows. They may cost more than adjustable rate or hybrid loans, but the base amount is fixed and will not change, the only things that will change throughout the years will be your taxes and hazard insurance.
If you choose an adjustable rate mortgage you are dependent on the conditions of the market and though there is a limit to how high your rates can go it’s a bit risky. If you’re planning on living in your home for five or more years get a fixed-rate mortgage. If you are going to sell your home before that it’s a bit of a risk. It usually takes an average buyer five years to earn their closing costs in equity.
When you’ve reduced the group of lenders, ask them all to give you a quote on the same day. Rates can easily change from day-to-day so make sure you ask all your potential lenders on the same day to get the best comparison.
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