How to Avoid Mortgage Mistakes

Buying a house can be confusing and it is very easy to make a mistake on your mortgage that may cause you financial trouble. Here are some tips on how to avoid a mortgage mistake.

Difficulty: Moderately Easy

Instructions

1. The first step should be fixing your own credit. This will allow you to qualify for a lower interest rate. Obtain copies of your credit report and clean up any discrepancies. Allow about six months for everything to be cleaned up. While you are waiting, get rid of as many bills as you can. This allows you to borrow more money, but better yet, it frees up more money for you so that you know you won't be "house poor" when you move into your new house.

2. Many first-time borrowers start looking for a house before they are financial preapproved. Prequalified is different than being preapproved. Prequalification is where a lender tells you how much money you probably can borrow based on how much money you make, how much debt you already have and how much cash you have for the down payment.
   
   Preapproval, is a much more rigorous process and involves actually applying for a loan and you need to submit tax returns, pay stubs and other information. The lender verifies the information and checks your credit. If all goes well, the lender agrees in writing to make the loan.
   
   This is an important step you should take first as not only will you know what you can afford, you will be taken more seriously when you make an offer on a house.

3. Not looking into first time home buyer programs. Most states and even cities offer first time home buyer programs and it is up to you to find them. Don't expect your Realtor or lender to do it for you. Also, if you are a Veteran, the Dept. of Veterans Affairs will send you information on buying a house and help you get a guaranty loan that will save you money and for no down payment.

4. Many people take out the biggest loan they possibly can because the lending company says they can afford it. You know what you can afford more than the lending company and it is your responsibility to not over extend yourself. When you do the math for the payments on the house, don't forget that you need to add approximately $300.00 a month on to that amount to cover property taxes and insurance. Plus, you will be paying a water bill for the first time and your electricity bill will probably be higher, too.
   
   Knowing exactly how much you can afford could save you from foreclosure.

5. Shop around for rates and terms, this falls in line with getting preapproved. Many times, Realtors will pick out a lender for you and you get caught up in the process and don't shop around.
   
   Beware of subprime loans which are more profitable, so less ethical mortgage brokers may push them.
   
   Educate yourself on knowing what your prevailing interest rates are for someone with your credit. A comprehensive listing of prevailing rates and fees can be found on the internet.
   
   And don't forget about applying for a loan from your own bank. Even people with a few dings on their credit can often qualify for better loans being offered by private-sector lenders.

6. Be aware of junk fees that lenders will add on. Some may be legitimate, some may be inflated and others are fluff. A lenders may charge $250 for a credit check that cost them $15. Try to negotiate with them and see if you can get these fees reduced. If they won't then go to another lender with their estimate and see if they can beat it.
   
   Just like when you negotiate for the price of a car you can do the same when negotiating for a loan.
   
   Know terms and ask about the interest rate, the points charged to get that rate and any other fees the lender charges, if a fee is higher than your last estimate then tell the lender to see if they will reduce the fee.
   
   Note that you will have to pay some junk fees when it comes time to sign the loan, but you should have them reduced as much as possible and will feel better that you did the best you could.
   
   Unfortunately, the federal government has done little to prevent junk fees.

7. Closing day can be nerve racking enough, so be prepared for even more money that you will need to come up with. You'll also be expected to write a check for a number of expenses, which typically include attorney's fees, taxes, title insurance, prepaid homeowners insurance, points and other lenders' fees. Your lender or Realtor will have an estimated idea of what that is going to be and can help you prepare for the amount.

8. And lastly, don't forget that you will need some money to move and to have your utilities turned on. Although it is not part of the mortgage process, be prepared for an emergency, like a broken garbage disposal. Being prepared will help you feel more secure with your new house so that you can actually enjoy being a new home owner.