8 Big Mortgage Mistakes and How to Avoid Them!

-Excerpted from MSN Money, Liz Pulliam Weston's column, and others

     

Applying for a mortgage can be a daunting experience.   It's not enough that you're agreeing to take on the biggest debt of your life, one that represents two to three times your annual income. You are also confronted with piles of paperwork, flurries of fees and a tidal wave of terms whose meaning is fuzzy at best. In all this confusion, it's easy to make mistakes. Here are some common ones that lenders see, and what you can do you prevent them...

 

1. NOT FIXING YOUR CREDIT.  Lenders are confounded at the number of buyers who apply for a mortgage with their fingers crossed, hoping their credit will allow them to qualify for a loan. Obtain copies of your credit report and your FICO credit score, the three-digit number that is used in 75% of mortgage-lending  decisions. You can do in on the Internet for as low as $12.95. Do this 6 months in advance, to challenge any errors on your report. This should ensure that they are removed by the time you're ready to apply for the loan. This way you can see the factors that are hurting your score, and can do something about them such as paying off an overdue bill or paying down on a credit card.

 2. NOT LOOKING FOR 1RST. TIME HOME BUYERS' PROGRAMS. These programs, sponsored by state, county or city governments, can offer better interest rates and terms than you'll find from a private lender. Many are tailored for people with "damaged credit". Check with local agencies and see what info you can find out about these programs if you are a first-time home buyer.

3. NOT GETTING PRE-APPROVED FOR A LOAN. Many people get "pre-qualified" confused with "pre-approved". Pre-qualification is a more casual process, where a lender tells you how much money you can probably borrow based on how much money you make, how much debt you have, and how much money your have for a down payment. Getting pre-approved is a more rigorous process, which involves actually applying for a loan. You typically submit tax returns, pay stubs and other information. The lender verifies the info, checks your credit, and then agrees in writing to make the loan. In a "hot market" like the one we're now experiencing, home sellers give more weight to offers made by buyers who already have their loans lined up.

4. GET A GOOD FAITH ESTIMATE. By law, within 3 days of ratifying a contract, a lender should furnish the buyer with a "good faith estimate", an estimation of the total fees, charges and costs for closing the transaction. Ask about every fee, and try to negotiate down the ones that seem excessive (especially junk fees...see later in this article!). If the lender won't negotiate, "shop around". Take the estimate elsewhere, you can probably find another lender to beat it!

5. NOT SHOPPING AROUND FOR RATES AND TERMS. Many borrowers with decent credit are getting stuck with loans meant for people with poor credit. If a home buyer doesn't know what the prevailing interest rates are for someone with their credit standing, they can easily pay thousands of more dollars than they need to. So-called "subprime" loans are often more profitable, so less ethical mortgage brokers may push them. Even people with a few dings on their credit can often qualify for better loans than hey are typically offered. So check them all out, don't accept the first one offered!

6. PAYING JUNK FEES. Lenders can boost their rates by adding on a variety of fees. Some may be legitimate, some may be inflated and others may be pure fluff.

7. NOT PLANNING FOR CLOSING COSTS. Minimize the amount of personal items and mementos in your home. Prospective buyers want to imagine themselves living in the home. Dozens of family pictures and your grandchild's finger painting cluttered on the refrigerator will make them feel that they're invading your home, rather than inspecting their future home.

 8. NOT HAVING ENOUGH CASH ON HAND AFTER CLOSING.

You know that there will be things you'll need after you close...like cash to turn on utilities, moving expenses like the moving van...to say nothing of new decorating costs. So make sure that you don't tie up every penny with the closing, you'll be glad you did!

I hope these tips will come in handy...obtaining a mortgage shouldn't be scary if you know, ahead of time, what you are getting into!

 

(This article provided by the National Association of Home Builders.)