Mortgage Mistakes Can Be Avoided with Some Research

How to avoid common home buying errors

The average American will not spend more money on anything in his or her lifetime than they will on a house. It’s a big expense and one that will take years to pay off, even under the best of circumstances. And yet, many buyers jump into buying a home with no more forethought than they would if going to the store for a gallon of milk. 

And by jumping into the mortgage process without doing their homework, many buyers fall into various traps that ultimately cost them money. If you are going to spend several times your annual salary on a house, you should do so from an informed perspective. Below, we will examine some mistakes that people commonly make when buying a house and how you can avoid them.

• Failing to shop around for a loan. Shopping for a loan can be like shopping for a car - the prices will vary from lender to lender. But you won’t know that unless you do a bit of looking. Sure, the average prices will be about the same, but the particulars will vary from lender to lender, and it’s the particulars that can make a deal a great one or a poor one.
• Failing to shop around for a loan officer. There are good ones and bad ones, just like there are good and bad loans. Take time to find someone with whom you feel comfortable. After all, you are entrusting them with a lot of your money.
• Final fees - these are those “particulars.” Final fees are additional fees that are added to the mortgage at closing, ostensibly to cover the lenders expenses and whatnot. They can, and do, add up to thousands of dollars. You need to find out ahead of time what these charges are and compare that list to the list you see at closing. Did the lender add anything? They often do, without the buyer knowing.
• Using a dangerous Option ARM or interest-only loan to buy more house than you can afford. If you must use one of these two types of mortgages, you are buying too much house for your salary. Rethink your position or you may end up with a house you cannot afford.
• Make sure that the interest rate you are getting comes without having to pay “points” to obtain it. Most lenders will quote a rate and then mention that you can get a lower rate by paying a few points, where a point is one percent of the loan amount. These points can add up in a hurry and turn a good rate into a poor one quickly.
• Is there a prepayment penalty on your mortgage? With rates regularly fluctuating, many buyers find themselves refinancing one or more times within a decade of buying. But if you have a several thousand dollar penalty for doing so, you have a bad situation. Ask about, and avoid, prepayment penalties.
• Don’t pay a fee to set up a biweekly mortgage payment. Yes, you can save money, as you are making an extra payment per year. But your lender may allow you to set up such a plan for free. If not, you are always free to add extra principal to the payment every month. And that costs nothing.

These are simple things that can easily be overlooked. Don’t fall into that trap.