Top 10 Mortgage Mistakes
1.) Taking the advice of only one mortgage broker or lender. If you do, how will you know that you are getting the best mortgage terms? Even if you do, maybe they do not offer a particular mortgage program that may benefit you even more? Comparing mortgage quotes are vital in getting the best mortgage loan.
2.) Taking a mortgage with an adjustable rate at over 90% LTV (loan to value). Many people make this mistake just figuring that they will refinance after 2, 3 or 5 years to find out that circumstances have changed and they no longer qualify to obtain favorable rates. Even worse, some cannot get out of the adjustable rate mortgage and then stuck with a mortgage that has increased 2 or 3% thus increasing the mortgage payment to an unmanageable level. Unfortunately, many that are losing their homes to foreclosure took this type of mortgage at a high LTV.
3.) Going with a real estate referral without shopping around. Many real estate agent, builder or even a friend may suggest the use of a particular mortgage company. Although it's definitely worth a phone call, but always compare with a couple others. You may find out that your referral does not have the best rate or mortgage program for you.
4.) Taking an interest only loan to be able to afford the mortgage payment. I think this one speaks for itself although there are people that do it every day. Also, never take an interest only loan because you are banking on real estate appreciation. Don't make this mistake, it can backfire.
5.) Going ahead with a "low ball" mortgage quote. The term low balling is referred to quoting an interest rate without any intention of giving that to you at closing. It may be hard to tell the difference when shopping around. But if it is generally more than 1/8% lower than all the other quotes, it very well could be a bogus quote. Protect yourself by asking for a written lock commitment.
6.) Not shopping around because your credit is not perfect. There are many lenders that specialize in this type of mortgage loan so you can still shop around for a competitive interest rate. Why pay more than you have to. Compare mortgage quotes to get the best mortgage loan based on your credit.
7.) Not asking if there is a prepayment penalty. This is a big oversight with most people. Pre-payment penalties can be as high as 6 months interest for as long as 5 years. Take this into consideration when comparing mortgage quotes.
8.) Not getting a rate lock in writing. When a mortgage company tells you they have locked your rate, get a written statement which includes the interest rate, the length of the rate lock and details about the program.
9.) Assuming that the Good Faith Estimate is binding. Most people have heard "get a good faith estimate" when shopping around. This is true, however, most people also think that the interest rate is binding as well. Rates change daily and the interest rate on your good faith estimate does not guarantee that interest rate. See rate lock above.
10.) Getting a home equity line of credit when you plan to
refinance your first mortgage in the near future.
Especially if your first mortgage is an adjustable rate. Most lenders will see
this as a cash out transaction just because you have a second mortgage. Lenders
will be more conservative on how much they lend against your home and the rate
can be a bit higher. Do not borrow 100% of your home equity on a second mortgage
and expect to refinance your first mortgage any time soon.
Now that you know what mistakes to avoid, its time to...