Terrible Mortgage Mistakes that Cost You an Arm and a Leg
By Sadiya Anjum
Its no big secret that most of us get pretty hassled when confronted with the actual process of obtaining a mortgage. Sure you may know what a mortgage is but what about the whole messy details included? Ignorance is the key to failure. Not knowing what you are getting yourself into is a pretty foolish act. So begin with collecting as much information as you can about mortgages and try to understand how it all works. Apart from this, even the experienced tend to make some of the following mistakes. When thinking of getting a mortgage, make sure you do not find yourself trapped because of any of the following reasons:
Bad credit history: Sure there are bad credit mortgages available today but if you can fix your credit scores before obtaining a loan, there is nothing like it. Get a credit check at least six months prior to applying for a mortgage. In this time span, you can analyze what you are doing wrong and how you can fix the problem.
Selecting the wrong mortgage: The mortgage that you choose should suit your situation, i.e. your financial status now and how it will be a few years down the line. For instance getting a huge mortgage when your partner is planning to quit working in the near future is disastrous. Figure out how much you are capable of paying and pick out a mortgage that will suit your lifestyle.
Selecting a HUGE mortgage: Buying a home is probably your biggest investment but this does not mean it is the only investment or the only expenditure. Buying a home means money needed for bills, utilities, taxes, insurance etc. This is excluding your other expenses like children’s school fees, vacations, savings (!) etc. Your housing expenditure (mortgage expenses, property taxes, insurance) should all total up to about 25% of your income and no more.
Settling for the first deal: It is essential that you look around and find what all is available before settling on a mortgage. You have to do enough research to find out who will give you better interest rates and better terms in general.
Over-insistent lenders: Shopping for the right lender is essential. One who seems too forceful and makes you uncomfortable is not right. Pick one who knows his job and will not take advantage of you.
Not fixing the interest rate: It is essential that you get your lender to fix the interest rate and put it on paper. This interest rate should not be a “discount rate” or an “introductory offer”. Apart from getting it fixed, negotiate with your lender for lower interest rates.
Ignoring the prepayment penalty: A prepayment penalty refers to the fee you will have to pay if you decide to refinance or sell your home. This can amount to almost six months’ worth of interest rate on over 80% of the original value of the loan. This is too high and will put a huge dent in your pocket. So evaluate mortgage offers for the prepayment penalty before you pick one.
No or little down payment: Making a substantial down payment means a lot of good things. You are firstly clearing a portion of the purchase price and next you will be able to bargain your interest rates. The bigger the down payment, better the chances of a lower interest rate.
Shelling out junk fees: Most lenders will bill you for a lot of other things like document preparation, credit checks etc. Some of these may be real and some just ridiculously unfair; when shopping for lenders get these details too so you can compare prices and make the right choice.
Closing costs: Closing basically indicates the day you are supposed to receive your loan. On the day of closing, you may have to cough up money for several aspects like attorney’s fees, taxes, lender’s fees, insurance etc. Make sure you get the estimate from your lender earlier so you can be prepared to pay the required amount. This amount will be a substantial sum, so you need to be prepared ahead of time.
Before and After obtaining the loan: Before you are obtaining a loan, try not to make large purchases. Your total credit still counts when you are getting a loan, so a huge expenditure before obtaining a mortgage is a bad idea. Also most people tend to budget so strictly that they do not take into account the expenditure after you have obtained your loan. Once you buy your new home, you may want to spend some money for decorating it, buying insurance or having to fix a plumbing problem. Make sure you save some money for unforeseen expenditures.
These are some of the most common mistakes that first-time mortgage shoppers do. You need to watch out for these before you pick out the mortgage that is most favorable. Do not get intimidated: know your budget, know your situation (future prospects) and look around till you find the best mortgage offer.
Article Source: ChoiceOfHomes.com - Find Homes for Rent and Sale OnlineThis article may NOT be reprinted in any form without the express written consent of ChoiceOfHomes.com
©Copyrights ChoiceOfHomes.com 2004-2006