12
Costly home buying mistakes
and how to avoid them.
**If you're like most people, buying a home is the biggest investment
you'll ever make. Annual mortgage, tax and insurance expenses can
consume up to 55% of your gross annual income. By visiting this
reference page, you're on your way to protecting yourself, and making
the home-buying process easier by becoming a well informed consumer.
1.) Not getting pre-approved before meeting with a real
estate agent.
Pre-approval and pre-qualification are two entirely different things.
During the pre-qualification process, a loan officer asks you a
few questions, then hands you a "pre-qual" letter. The
pre-approval process is much more thorough. During the pre-approval
process, the mortgage company does virtually all the work associated
with obtaining full-approval. Since there is no property yet identified
to purchase, however, an appraisal and title search aren't conducted.
When you're pre-approved, you have much more negotiating clout with
the seller. The seller knows you can close the transaction because
a lender has carefully reviewed your income, assets, credit and
other relevant information. In some cases (multiple offers, for
example), being pre-approved can make the difference between a successful
contract and losing the house you want. Also, you might save thousands
of dollars as a result of being in a better negotiating position.
Most Realtors will not show you homes until you are pre-approved.
They don't want to waste their time working with someone who isn’t
sure of their purchasing power. Lighthouse Mortgage, LLC can help
you become pre-approved at no cost.
2.) Choosing a lender because they are recommended by
your Real Estate Agent.
Realtors are not a mortgage or financial experts. He or she may
not know which loan is best for you. Your Realtor gets a commission
only when your transaction closes. As a result, the Realtor may
refer you to a lender who will close your loan, but who may not
have the best rates or fees. Also, many Realtors refer you to one
of their friends in the loan business--who also may not have the
best rates or fees. Although most Realtors are professional and
concerned about your best interests, you should do your own homework.
We recommend shopping for a loan with at least three mortgage companies
before you make a decision. There are countless stories of consumers
who ended up paying higher rates, or got a loan that wasn't right
for them, because they blindly followed their Realtor's advice.
3.) Choosing a lender because they quoted the lowest rate
on the phone and not getting a written good-faith estimate.
Request a good faith estimate so you can compare other
fees between lending institutions. While rate is important, you
have to consider the overall cost of your loan. Pay close attention
to the APR, loan fees, discount and origination points. Some lenders
include discount and origination points in their quoted points.
Other lenders may only quote discount points, when in fact there
is an additional origination point (or fraction of a point). This
difference in the way points are sometime quoted is important to
you. One lender will quote all points, while another lender may
disclose an extra point, or fraction thereof, at a later time--an
unwelcome surprise. Within 3 working days after receipt of your
completed loan application, your mortgage company is required to
provide you with a written good-faith estimate (GFE) of closing
costs. You may want to consider requesting a GFE from a few lenders
before submitting your application. With a few GFEs to compare,
you can get a feel for which lenders are more thorough, and you
can educate yourself regarding the costs associated with your transaction.
The GFE with the highest costs may not indicate that a particular
lender is more expensive than another--in fact, they may be more
diligent in itemizing all fees. The cost of the mortgage, however,
shouldn't be your only criteria. You must also feel comfortable
that the loan officer you are dealing with is committed to your
best interests and will deliver what they promise.
4.) Failing to completely & accurately disclose information
on the initial loan application.
Without a complete picture of your financial position, a lender
may not able to make a lending decision that would be in your best
interest. So, fill out the application completely and as accurately
as possible. Don't be afraid to ask you loan officer for help. That’s
why they are there!
5.) Failing to provide the loan officer or processor with
the information they have requested in a timely manner.
Loan officers and processors often have to make multiple requests
for required information from the borrower to complete their file.
If you don't provide the documents, it will only extend the processing
time of the loan and possibly delay the closing.
6.) Not understanding the terms of the sales contract
OR making oral agreements.
One of the major benefits of working with a Realtor is that they
can explain the details of the contract to you. If you are not working
with a real estate professional, an attorney can explain the contract
provisions that are not clearly understood. If an agent asks you
to sign a written document that is contrary to their verbal commitments,
don't do it! For example, if the agent says the washer will come
with the home, but the contract says it will not--the written contract
will override the verbal contract. Verbal contracts are not valid
or binding in Real Estate Law. When it comes to real estate; ALWAYS
GET IT IN WRITING!
7.) Buying more home than is comfortably affordable.
Be realistic about your budget and the kind of lifestyle a higher
housing payment could require.
8.) Making large installment/Credit purchases.
Be careful not to buy any big ticket items (things such as furniture,
automobiles, or appliances), prior to closing. These purchases could
change your financial picture, and may affect your ability to qualify
for the home you want.
9.) Using a limited dual agent (an agent who represents
the buyer and seller in the same transaction) instead of a buyer’s
agent.
Buyers and sellers have opposing interests. Sellers want to receive
the highest sale price, and buyers want to pay the lowest price.
In most situations, limited dual agents cannot represent both parties
to the fullest level possible. Since the seller was the first client,
the dual agent may feel a fiduciary duty is owed to the seller.
If you are a buyer, it is usually better to have your own agent
represent you. The only time you should consider using a dual agent,
is when you can get a price break (usually resulting from the dual
agent lowering their commission). Even in that case, proceed cautiously
and do your homework!
10.) Buying a home without professional inspections or
taking the seller's word that repairs have been made.
Even if you're buying a new home with warranties on most equipment,
it is highly recommended that you get a whole house inspection including
a termite report. These reports will give you a better picture of
what you're buying. Inspection can be a great negotiating tool when
it comes to asking the seller to make repairs. If a professional
home inspector says repairs need to be made, the seller is more
likely to agree to making them. If the seller agrees to make repairs,
verify the work has completed work prior to closing. Do not assume
that everything was done as promised.
11.) Not shopping for home insurance until you are ready
to close.
Start shopping for home owners insurance even before you have an
accepted offer. Many buyers wait until the last minute to get insurance
and find they have no time left to shop around or even worse find
out they are or the house is uninsurable.
12.) Signing documents without reading them.
Do not sign documents in a hurry. As soon as possible after closing,
review the documents you signed at closing; including a copy of
all loan documents. This way, you can review them and get your questions
answered in a timely manner. Do not expect to read all the documents
during the closing. There is rarely enough time to do that. ↑ back
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