April 26th, 2016 5:45 AM by Jackie A. Graves, President
For most buyers, the mortgage
is the largest monthly expense they will have. Yet most borrowers will do
little to no preparation, negotiation, or shopping to get the best deal. And
they end up paying much more for their loans than they need to. You? You're
smarter than that, or you wouldn't be reading this article. Here are five of
the biggest mistakes that can cost you real money.
1. Believing advertised rates are
what you'll pay
Unless you have perfect or near-perfect credit, most advertised rates are
out of your league. To get boasting rights on a rate that good, you have to pay part of a point (one percent of the loan amount) a
point, or more to get the best rates.
Your lender will go over your
credit with a fine-tooth comb to find anything to raise the rate. That includes
qualifying you at the beginning of the transaction, and then running your
credit again a day or two before you're supposed to close on the home and loan.
If there's been any change in your debt-to-income ratio, goodbye low mortgage
2. Not comparing lenders
Just like everyone knows two or
three real estate agents or more, everyone knows a loan officer or a mortgage
broker. A loan officer works for a bank or savings and loan and can only offer
you loan packages that the bank has put together. A mortgage broker
prequalifies you just like a loan officer, and shops your deal around to various
Whether you talk to a loan officer or a mortgage broker, you're
going to have to share personal financial information in order to get a realistic
rate. Reputable brokers will show you what certain banks and credit unions
quoted and you can pick the loan you like best.
If you'd rather do your own
shopping, consider talking to a local bank, a national bank, a credit union,
and a savings and loan, but remember, unless you give them personal information
and permission to run your credit, it's just talk.
3. Not paying attention to
Advertised rates even for those
with perfect credit aren't what you will actually pay. The true cost of the
loan is the APR or annual percentage rate, which includes fees
from the lender.
Understanding loan terms is
harder than shopping for a new mattress. There are so many ways lenders can
inch up the fees. A loan origination fee
is also called a processing fee. It pays the loan officer or mortgage broker,
so this fee can vary widely. You may pay one lender more for an appraisal than
another might charge you.
One lender may charge more for
pulling your credit than another. It's all in your good faith estimate, which
you don't get until you've applied for the loan.
All terms are negotiable, so
don't be afraid to ask what a particular fee is for and can it be reduced or
4. Waiting for a better rate
It's great to have bragging
rights on a low rate, but you don't want to lose the home of your dreams over a
quarter of a point in interest.
There's a big picture here you
could be missing. No matter what your interest rate is, you're going to pay
thousands of dollars in interest up front before you make any serious gain in
equity. If you go all the way to the end of your loan's term, you'll pay so
much interest that you could have bought the same home two or three times.
Instead of focusing on the
percentage rate, work on how quickly you can build equity. Make one extra payment a year.
Pay $25, $100, or $500 extra per month and you'll more than offset the rate
Down the road, if rates drop
through the floor, you can refinance, but even that's not an ideal solution.
You'll pay loan origination fees, title search fees, appraisal fees and so on
-- enough to equal the closing costs you paid the first time around.
And don't forget, you'll start
the amortization schedule all over again -- with most of your payments going to
interest instead of principal.
5. Choosing the wrong type of
Many families were hurt post-9/11
when lenders opened the spigots and gave a loan to almost anyone who could sign
the paperwork. Suckers bought homes that were too expensive using balloon loans
with low teaser rates.
The type of loan you choose
should depend on current market conditions and how long you plan to stay in
your home, not how much home you want to buy.
Current market conditions favor
fixed rates, because rates are rising from all-time lows. Yes, they cost more
than hybrid loans or adjustable rate loans, but the base amount is fixed and
doesn't change. Only your taxes and hazard insurance will cost you more over
If you get an adjustable rate
mortgage, you are at the mercy of market conditions. While there's a cap on how
high your interest rate can go, it's still a risk.
If you plan to stay in your
home five years or more, get a fixed-rate mortgage. If you plan to sell your
home sooner, you're taking a risk. It takes most borrowers five years just to
earn back their original closing costs in equity.
Once you've narrowed your
choice of lenders, ask them on the same day to give
you a quote. If you wait even one day, rates may have changed,
so you're no longer comparing apples to apples.
Written by Realty Times Staff - To view the original article