Thick Top 5 Mistakes Homeowners Make When Selecting A Mortgage

One of the largest investments a person can makes in their life is in their home. Unfortunately many people make long-term mistakes when choosing what kind of loan program they will commit to, sometimes these mistakes can lead to destroying ones credit; owing more money than a home is worth, even loosing their property all together! In today’s housing market, with rates rising, and in some cases, values depreciating, it is imperative that consumers shopping for home loans are well informed of all of their options and are making decisions with their financial future in mind.
1) Just give me the rate â€" Many times home owners are confused as to what loan cost and interest rate are. Many times when a borrower is shopping for a mortgage, they are looking exclusively based on interest rate. Sometimes they will only entertain an offer with the no closing costs gimmicks. When shopping for a mortgage you must ALWAYS be looking for the perfect balance of closing costs and interest rate. Ask yourself; “Do I want to pay X amount of dollars in closing costs for a quarter point advantage in my interest rate if I plan on staying in this home for only X amount of years?” Remember that most lenders roll these costs into your loan. If your lender seems to be holding back information or will not give you an estimate of both figures, closing costs AND interest rate, find another lender. Your lending representative should be available for your questions and should be willing to explain the details of your loan. Together you should be able to find the perfect balance between closing costs and interest rate. Remember that a loan must always be tailored for your specific needs and goals.
2) I only want a 30 year fixed â€" The 30 year fixed rate mortgage is not only the popular loan product, it’s also the easiest to understand. The vast majority of consumers believe that the only mortgage programs available to them are the 30 or 15 year fixed mortgages. This is not always your best option. In fact, most of the time it is the least appropriate option. The average American refinances every 4.9 years. When shopping for a mortgage, ask about the short term mortgages like the 2 year ARMs, the 5 year ARMs, the 10 year ARMs. Most of the time your short term interest rates will be better than a 30 year fixed rate. These short-term products do go adjustable once their fixed term has expired though, so watch out and know what you’re doing. If you plan on staying in a home for only four years, or let’s say you have a less than satisfactory credit score and you’re working on improving upon it within the next couple of years, don’t commit to 30 year financing and throw more money away in interest than you have to.
3) I’ll take the 1% with a side of no closing costs â€" The Option ARM has become a popular loan program in recent years because of the ultra low cost of money. It allows the homeowner to make up to four different payment options, including the 1% payment option. Obviously it’s become a popular loan because it is so easy to sell, who wouldn’t want to make a 1% payment? Especially when most of the time a lender will agree to pay a portion of, or all of the closing costs. If you plan on investing with your equity or make home improvements with the money you save, this may be a good option, as it may be utilized to your benefit in many ways. However, because this is a differed-interest loan, it’s imperative that your loan consultant is well versed in the details of the Option ARM. Your loan officer should be able to explain to you how the index and the margin work, and which index is best to use. I personally won’t put anyone in an Option ARM unless its rate is based off the MTA or COSI index. If your loan officer doesn’t seem to be an expert, get a new one, this is your house we’re talking about here!
4) Credit reports â€" What I thought was common knowledge is one of the biggest mistakes people still make, and it affects every loan a person ever applies for. Did you know that every time someone pulls your credit report, the score is affected in a negative way? Time and time again I come across clients that have ‘been around the block’ so to say, with several financing institutions whether it is for auto financing or a home loan; they have run their credit into the ground. It’s not uncommon to come across a client that has had 30 credit pulls in the past 60 days, and widely affects their credit standing. The best way to shop for any financing is to know your credit score. Have it run once and not again until you begin working with the loan officer you’ve selected to do business with. If you ever want an accurate estimate as to what rates, terms and closing costs are available to you, the lender must have a score to assume. They will ask you every time to run your credit, and every time they run your credit it gets worse and worse. Do yourself a favor and know your score, 99% of all home loan rates will be based off your “mid-fico” score. There are always 3 different credit bureaus reporting. The mid score is the out of a report that says 657, 662, & 694 is 662.
5) Be prepared! â€" I find that 60% of the time it will take about one week for a borrower to get back to me with signed disclosures, mortgage coupon, hazard insurance, and other paperwork required to continue with a loan. The other 40% of the time it takes a month or MORE of phone tag, messages, and excuses. Do not hesitate, literally. Rates change every month and there are items required to “lock a rate”. It is not only easier to be prepared, have your files ready, have your paperwork ready, but it saves you money! In addition to this, once you do fax in or mail in your info, it is always a great idea to remind the broker to lock the rate. If they can’t lock the rate and show you proof, you should consider going with another lender. With the direction of rates heading north on a consistent basis, it is important to request a rate lock and to ‘act fast’ when sending in your paperwork.
Loans are complicated, I know, and if it isn’t your chosen field of work, it’s even more complex. The best advice I can provide to you, the borrower, is find the right mortgage consultant for you and pay close attention to what is said, and all of your options. Ask all the questions you can think of and read all of your documentation.
California Mortgage California Mortgage Online