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Tips To Avoid Mortgage Mistakes

Posted by  on May 03, 2010
 

For most people, buying a house and getting a mortgage is their most significant and costly financial commitment. Given this fact, it only makes good sense to gather as much knowledge as possible before committing to a mortgage contract, both to gain a more favorable mortgage and to avoid making the most common mortgage mistakes.

Choose your Lender Carefully


Choosing the right mortgage lender is an important part of the application process. Try to select a lender you trust and feel comfortable with, rather than opting for the lender that offers the lowest rates. Unscrupulous lenders have no problems with offering attractive rates to draw customers in, then surprising them with hidden costs later on. That “no fees, no down payment mortgage” may look great, but it very often comes at the cost of much higher interest rates, and those mortgages with low, low interest rates have hidden costs, too. Choosing a reputable lender will ensure you do not get any unpleasant surprises down the line, and you will know up front exactly what your costs will be.

Check Out your Mortgage Options

A conventional 30 year fixed-rate mortgage is not always the best option. It is the safest, and the one that is least likely to give you financial headaches in the future. However, in some situations getting an adjustable rate mortgage can save you a decent chunk of money in the short term. The value of an adjustable rate mortgage depends mostly on how long you plan to own the property. If you are a first-time buyer, it is important to realize that the average first-timer owns that first home for only four to five years, and that adjustable rate mortgages are more valuable in the short term rather than the long term. If you know you are not planning to live in your home for more than a few years, it is often a good idea to opt for an adjustable rate mortgage, as the interest rate will be lower than a fixed rate mortgage for the length of your ownership period.

Check your Good Faith Estimate for Hidden Fees

All lenders are required by law to supply a borrower with a Good Faith Estimate within three days of their mortgage application. Make sure you get yours”and then check it carefully for the hidden fees that can add several hundred dollars to closing costs. These are payable in cash when you close, and finding this cash can often be difficult when you have just laid out a large sum of money on a down payment. Hidden costs are not always disclosed explicitly on a Good Faith Estimate, and sometimes you have to read between the lines to discover them. These costs may include money for payment of overnight document delivery, and document processing fees that aren’t necessarily required in your situation. If time is not too tight you can, for example, ask that documents be delivered by regular mail or electronically, thus saving yourself the cost of overnight delivery.

Don’t wait too Long to Lock in an Interest Rate

If you are waiting to lock in an interest rate on your mortgage, it is important to watch the market closely”you do not want to be stuck with a higher interest rate than you can afford because you waited too long. Waiting to lock in your rate is often advantageous, but it does come with risk attached, and paying close attention to the mortgage market will help you minimize the risk.

Don’t Forget Closing Costs

In most cases, closing costs will come to between three and six percent of the appraised value of the property you are buying”meaning $3,000 to $6,000 for every $100,000 of the property’s value. Most of this money is payable in cash at the time of closing, however some fees, such as your loan application fee and appraisal fees for the property, must be paid before closing.

Negotiate Problems before Closing

In some situations, you will want to negotiate with the seller of the property on certain issues. If, for example, the home inspection uncovers a requirement for home repairs, you may want to negotiate with the seller and ask them to either pay for repairs or lower their price as compensation. It is always best to negotiate these types of issues in advance of closing, to prevent delays and to give you and the seller time to decide on the best solution.

Close at the End of the Month

When closing time comes around, you will be required to pay, in cash, the pre-paid interest on the first payment of your mortgage. This sum covers the interest that accrues from closing until the end of the month in which closing occurs. By closing at the end of the month you’ll reduce the amount of pre-paid interest that accrues, meaning you will not need to come up with quite so much cash at closing time.

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