House-hunting is fun (at first) when you’re armed with your list of must-haves. You need three bedrooms, and popcorn ceilings are a deal breaker. Picky? Perhaps, but you feel prepared. Along with knowing you detest split-level ranch homes, you also need to be ready to take on a huge loan. Yes, making the right choices when it comes to applying for a mortgage is just as important as investigating good school districts. Put aside the real estate section for a moment and get your mortgage needs squared away before going to another open house. Here are some monster mortgage mistakes and how to avoid them.
Having big eyes
Everyone wants to move into a dream home, but it’s usually not possible. More important than a pool in the backyard is financial stability. “You need to create a budget and understand how much house you can afford before getting caught up in a fancy model home,” says Jim Pair, vice president of the National Association of Mortgage Brokers. Ugh, another budget. Yes, once again we’re insisting you take the time to honestly look at how much money you make and how much gets spent every month. Even if you think you’re pretty well-off, you still might blow a lot on eating out, shopping, vacationing, and other frivolous necessities. Decide if you need to cut any spending to afford a pricier home, and if not, determine what's realistic. “Don’t forget to consider the money you might spend after buying, like landscaping and remodeling,” says Pair. With the collapse of the subprime mortgage business, it’s going to be a lot more difficult to borrow too much, but you still need to be wary of getting in over your head.
Neglecting your credit history
Even if you're Mr. and Mrs. Perfect Credit Score, check the info again and make sure there are no new mistakes. Bad credit can affect the amount of your loan as well as whether you’ll get your loan on time or at all. “You only have a certain time frame in which to close a loan, and you might miss the lock while trying to clear up an error,” says Pair. And avoid closing credit cards while house hunting because it lowers your credit score.
Missing out on great programs
If you’re a first time buyer, there are all sorts of special loans designed just for you. Some are state-funded housing programs (see what’s up in your area), and national lenders sometimes issue mortgages that don’t require a down payment for people in professions such as teaching and law enforcement. Do some homework on the Internet and ask your loan officer if they know of anything that might apply to your particular situation.
Not getting preapproved
Imagine this: You finally find the perfect house; it feels right, and you can see yourself growing old there. Even better, it’s within your budget! You make an offer, but it’s contingent on getting approved for a mortgage. Good luck and get looking for a new home. “Being preapproved allows you to make an offer with an edge, and your bid is much more attractive than any others coming in,” says Pair. With all the loose ends tied up, you can close the deal quickly. A seller doesn’t want to wait around to see what will happen. Another benefit: You have a crystal-clear image of what you can afford. Terms vary but you usually have from 90 to 120 days in which a mortgage is guaranteed. That’s a lot of time to look for a house -- without being fearful that you aren’t presenting the best offer in town.
Going with the first broker
They might end up being the best and most competitive loan officer you meet, but you need to shop around. “Talking to different brokers will either confirm what you’re being told or direct you to a better deal,” says Pair. Aside from quoting loan rates, you should be offered a good faith estimate of your costs, including the down payment and closing costs, which vary by area, loan officer, and the price of a home. Then there are all the fees, some of which are negotiable. Ask each mortgage broker about where they're flexible. One fee that’s up for discussion is the origination fee. See if you can get a zero origination fee, which might up your interest rate but result in less money you need to pay up front when closing.
by Alonna Friedman
4/25/08
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Buying A Home,
mortgages,
Real Estate