Ten Mortgage Mistakes You Can’t Afford

Ten Mortgage Mistakes You Can’t Afford
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Save time and money by following these rules
By Lew Sichelman

Buying a home is complex enough but when it comes to financing, you need to make sure you are as prepared as possible in order to get a loan.
There are a number of mistakes you can make along the way of getting your loan approved. Here are some of the things to avoid to make the process go smoothly.

1.Don’t choose the wrong mortgage: Home loans may no longer be the lifetime obligations they used to be but still — you don’t want to be saddled for even a short period of time with the wrong one. Investigate all of your options, then lay your choices side-by-side and do the math, making sure to compare worst-case scenarios. Be sure to look at initial interest rates, future interest rates and payments (if different), and the possibility, though now rare, of prepayment penalties.

2. Don’t confuse “pre-approved” and “pre-qualified” with a loan commitment: When you are “pre-qualified,” the lender is making an educated guess about how much you can borrow based on information you’ve provided. When you are “pre-approved,” the lender has verified everything you’ve provided and is offering to lend you up to a given amount at current interest rates — under certain conditions. It’s much better to be pre-approved when shopping for a home because both you, your real estate agent and the seller know what you can afford. Whether pre-qualified or pre-approved, final clearance and a check at closing — a loan commitment — are subject to an appraisal satisfactory to the lender, good title, a last-minute credit check, and other verifications. When meeting with lenders, always ask what additional steps will be required to obtain a loan.

3. Don’t have too much credit: Excessive credit is almost as bad as no credit or even bad credit. Even if you pay your bills on time, lenders tend to focus just as much on how much credit you have available to you as they do on timeliness. So being up to your ears in car loans and credit cards is a sure way to be turned down for a mortgage. Postpone any big-ticket purchases until after you buy your house.

4. Don’t lie on your loan application: Exaggerating your income on a mortgage application or putting down other untruths can be a federal offense. Lenders rarely prosecute liars but if they find out later, they can call your loan due and payable. Don’t ever sign your name to a loan application that is not completely filled out, either. Loan officers have been known to stretch the truth to get a client approved, but it’s the borrowers who end up paying the price, often in the form of monthly loan payments they can’t afford.

5. Don’t hide if you can’t make your payments: The worst thing you can do is ignore phone calls and letters from your lender when you are behind on your payments. Lenders have many options at their disposal to help keep borrowers from losing their homes to foreclosure. But they can’t do anything for you unless they can talk to you about your difficulties. Lenders are the enemy only if you give them no other choice.

6. Don’t skip a home inspection: Failing to make your purchase contingent on a satisfactory home inspection could be a costly mistake. Independent home inspectors examine houses from stem to stern. They’ll be able to tell you whether the roof or basement leaks, whether the mechanical systems are in good shape and how long the appliances should last. They can’t report on things they can’t see, but at least their trained eyes are better than yours. So don’t pass just to save $300-$400; that’s money well spent.

7. Don’t hire just any agent to sell your house: All real estate agents are not the same. You want to look for those who specialize in your neighborhood and are top producers. Ask your candidates how they plan to market your house, what you can do to make the place more attractive to prospects and how much you should ask. If you don’t like any of the answers, look elsewhere.

8. Don’t fail to check out a remodeler: Never, ever hire a contractor who knocks on your door or says his prices are good for only a few days. Reputable remodelers don’t solicit door-to-door, and they don’t cut prices just because they happen to be in your neighborhood. Check out a potential contractor thoroughly by calling several of his past clients, your local better business bureau, his bankers and suppliers, and your local consumer affairs agency.

9. Don’t pay too much upfront: If a contractor asks for more than a third of the contract price as a downpayment, chances are something’s wrong. At worst, he’s a scam artist who has no intention of returning after he cashes your check. At best, he’s undercapitalized and can’t afford to purchase materials on his own. Or, in between, he could be using your money to pay workers on another job. Never give a contractor cash, either.

10. Don’t burn your mortgage: It’s a wonderful feeling when you make your last house payment. After all, the place is now yours, all yours. Many people celebrate by holding a mortgage burning party. But they torch the original document. Don’t. Make a copy and burn that instead. Keep all your loan docs in a safe place.