What You Shouldn’t Do When Looking for a Home Loan
A home may be the biggest purchase you’ll ever make, and for most of us, it comes with a hefty monthly payment. So isn’t it worth the time and effort to do your “homework” before taking on such a huge responsibility? With the right amount of preparation, shopping, and negotiation, you could end up with a better deal and a less expensive mortgage. While you’re going through this process, sidestepping these common mistakes will help you avoid overspending on your home loan.
DON’T expect too-good-to-be-true interest rates
Lenders almost always advertise their rock-bottom mortgage rates, which are reserved only for those with top-tier credit scores. Other borrowers might be able to get those low rates, but not without paying significant up-front costs. Even after you’ve been pre-qualified by a lender, you’ll be subjected to completing and producing endless documentation as well as additional credit checks. So unless your credit scores are upwards of 740 or you have a few extra thousand to fork up, you should count on paying more than what’s currently being promoted as the low rate.
DON’T go with the first lender you meet
Too many borrowers fail to meet with various lenders in order to compare rates and terms. By doing so, they miss out on the opportunity to find out what different lenders can offer. Mortgage brokers can do that shopping for you, but bank representatives are only able to offer you their bank’s deal. Either way, make sure you are working with a reputable broker or lender who doesn’t over promise and who takes the time to review all of your documentation before issuing a pre-qualification letter.
DON’T ignore your Good Faith Estimate
Lenders are required by the government to provide potential borrowers with a good faith estimate within 72 hours of their application submission. This estimate presents a breakdown of all of the fees and terms associated with a loan. Pay attention to loan origination fees, which may also be called processing fees that fluctuate with different lenders and brokers. Another cost that varies is the appraisal fee. Keep in mind that all of the fees and terms on the good faith estimate are negotiable, so feel free to inquire about specific fees try to get them reduced or eliminated.
DON’T wait too long to lock in a rate
While it’s a good idea to shop around for good rates and terms, you don’t want to gamble by holding out too long in the hopes that rates will drop. It’s best to look at the larger picture. You could risk losing a great home – or rates could actually rise – while you wait for a slightly lower rate.
DON’T enter into the wrong loan
There are several types of loans available to borrowers, each with its own pros and cons. Your ideal loan depends on your financial circumstances, how long you plan to own the home, and current market conditions. Today’s market makes fixed rate loans the popular choice due to the fact that rates are still low but are slowly inching up. These loans are often attractive to borrowers because they allow for budget predictability for the life of the loan. It’s smart to choose a fixed rate loan if you plan on owning your home for at least five years.
Adjustable rate mortgages, on the other hand, fluctuate with market conditions. There is a rate ceiling, however, even with that limit, your monthly payment has the potential to increase exponentially. Those types of loans are generally favored during times when interest rates are at their highest, and only if you plan on selling or refinancing the home in a short period of time.
If you’d like to find out what rates and terms are available to you, contact a Cliffco Mortgage representative today.