Sedona Mortgage Tips - 2008
by Pam Bayles
Big Mortgage Mistakes and How to Avoid Them
You can borrow too much or prepare too little. You can misjudge terms or overestimate your credit. With so much at stake, it’s no wonder so much can go wrong.
Applying for a mortgage can be a daunting experience. It's not enough that you're agreeing to take on the biggest debt of your life, one that represents two to three times your annual income. You're also confronted with piles of paperwork, flurries of fees and a tidal wave of terms, from amortization to title insurance, whose meaning is fuzzy at best.
Most people don't understand the loan process, that is why I am here to explain. Here are some common mistakes and what you can do to prevent them.
Getting “pre-approved” or “pre-qualified” for a loan
Many are confused on being "pre-qualified" with being "pre-approved." Pre-qualification is a pretty casual process, where a lender tells you how much money you probably can borrow based on how much money you make, how much debt you already have and how much cash you have for the down payment.
Getting pre-approval, is a much more rigorous process and involves actually applying for a loan. You typically submit tax returns, pay stubs and other information. The lender verifies the information and checks your credit. If all goes well, the lender agrees in writing to make the loan.
In a hot or even warm real estate market, home sellers and their agents give much more weight to offers being made by buyers who already have a loan lined up.
Not fixing your credit
Before you even think about applying for a mortgage, obtain your FICO credit score. Your FICO score is the three-digit number that's used in 75% of mortgage-lending decisions. You can order your FICO score on the Web for a fee of $14.95, which includes a copy of your credit report.
Doing this at least six months in advance should give you plenty of time to challenge any errors on your report and ensure that they're removed by the time you're ready to apply for a loan. You can also see the legitimate factors that are hurting your score and do something about them, such as paying off an overdue bill or paying down credit card debt.
Borrowing too much money
Many people take out the biggest loan they possibly can, figuring that their incomes will eventually increase enough to make the payments comfortable. But buyers need to have a clear idea of how expensive homeownership can be. Not only will you shell out more for mortgage payments than you probably did for rent, but you'll also need to cover property taxes and homeowners insurance, as well as higher bills for utilities, maintenance and repairs than you faced as a renter.
Lenders will let you qualify for more, knowing that you'll probably forgo vacations, retirement savings and new clothes for the kids rather than default on your mortgage.
"Mortgage money … is way too easy to get," and "People tend to overbuy" … and that can really stress family life. Instead of going to the edge of affordability, consider limiting your housing costs -- mortgage payments, property taxes and homeowners insurance.
Not shopping around for rates and terms
Too many borrowers with decent credit get stuck with loans meant for people with poor credit. Even people with a few dings on their credit can often qualify for better loans than they're typically offered.
National Bank has access to multiple investors for best rates & terms and I can shop these mortgage programs for you.
Not planning for closing costs and paying “junk” fees
The day you're scheduled to get your loan, known as closing, you'll also be expected to write a check for a number of expenses, which typically include taxes, title insurance, prepaid homeowners insurance, points and other lenders' fees. Together, these are known as closing costs, and the total can be eye-popping: somewhere between 2% to 7% of the selling price of the house. I make sure you know what all these fees are going to be before closing and go over them with you.
Some lenders boost their profits by adding on a variety of fees, not National Bank. You receive a Good Faith Estimate that will have the title company fees, lender fees, appraisal fee, taxes & homeowners insurance and any interest owing.
Not having enough cash on hand after closing
After borrowing for your purchase and scraping together every last dime for closing costs, many home buyers have nothing left in the bank to pay for anything unforeseen happening --and something unforeseen always happens.
It’s a smart idea for borrowers, to have three months' reserves, which means a fund equal to three months' worth of expenses, will help you handle the added costs of homeownership with much less stress. Some lenders now require a borrower to have two to three months' reserves after closing.
First time home buyers' programs
These programs, typically sponsored by state, county or city governments, often offer better interest rates and terms than you'll find among private lenders, but will be limited on loan amounts and have certain restrictive guidelines. For example, with FHA loans, no matter how much you put down, the loan requires mortgage insurance and a pre-paid Mortgage Insurance Premium. I check all loans to see what might be the best fit.
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2008 Articles
REFINANCE
OR PAYOFF DEBT ?
2007 Articles
SOME HOME BUYERS GAIN EDGE OVER CREDIT CRISIS
SEDONA MORTGAGE TIPS - 2007
