Friday, March 19, 2010

Don't Make These 7 Mortgage Mistakes

The Federal Tax credit is quickly coming to an end (April 30th). Hundreds of OKC metro home buyers are rushing to contact their realtors to get under contract by the deadline. While that’s great business for everyone involved in the real estate industry, home buyers can be unknowingly making several critical mistakes potentially costing them thousands of dollars over the life of their loan.

Regardless of whether you are a self-employed construction worker, or the CEO of a large corporation, buying a home represents making a purchase that is three to six times your annual income. You’re going to need financing for that large purchase and knowing the ropes before making this step will save you Lots ‘O Cash and tons of grief.

Failing to fix your credit. I talk with mortgage lenders and realtors every week who are amazed at the number of people who apply for a mortgage with their fingers crossed just hoping to be approved. They haven’t checked their credit much less done anything to fix the blemishes that tarnish their report. There are any number of websites that will provide your complete credit report with scores for a small fee. Take advantage of these resources to find and fix any errors on your credit report. Of course if the report is accurate and still showing bad credit, you’ll need more time to affect the fixes necessary to qualify for a home loan.

Not looking for first time home buyer programs. These programs are sponsored by cities and state organizations and typically offer down payment assistance to home buyers who meet certain criteria. If you are in need of this type of assistance and are interested whether or not you meet the criteria, contact your city administration for any help they might have. You can also check with the Oklahoma Housing Finance Agency at as well as Community Action

Getting pre-qualified instead of pre-approved. Most home buyers are confused by the difference in these two terms. Pre-qualification is a more casual process where the mortgage provider may or may not pull your credit and based on the information you tell them issue a pre-qualification letter. The pre-approval process usually requires you to submit tax returns, current pay stubs and bank statements before the banker issues your letter which states you are pre-approved for the loan.

Taking too big of a loan. Remember what Mama used to say? “Just because you can doesn’t mean you should.” Oh, your Mama didn’t say that? Well mine did, and it’s wisdom that still holds true. Just because you can qualify for the larger loan amount doesn’t mean you should do it. Remember that life will always throw you a curve ball when you least expect it. Take out a mortgage that anticipates the surprises of life and still allows you to make the monthly payment without too much stress.

Not shopping for the best loan. I’m constantly amazed at many of the mortgage quotes people show me when they are shopping for a new home loan. Even with the new Federal requirements that reveal many of the hidden fees and “fuzzy math” used for too long by many mortgage brokers, home buyers still ask me to review their mortgage quotes which contain hundreds and sometimes thousands of dollars of junk fees. Lesson to be learned; take time to shop for your best deal.

Forgetting about closing costs. Getting your new home loan is one thing. Getting to closing with enough cash to close is another. These expenses typically include attorney fees, title insurance, prepaid home owners insurance and property taxes, points and lender fees. These costs usually total around 3% to 5% of the price of the home. The unprepared home buyer sees these costs and gets the proverbial “deer in the headlights” expression. Plan for these costs by having your lender prepare an accurate cost to close spread sheet.

Not preparing for enough cash on hand after you move in. It’s expensive to move. Rent a truck, put down utility deposits, new curtains, a few throw rugs, several meals eaten out and then something unexpected will happen…it always does. The hot water heater goes out; the garage door lift burns up; the door locks have to be replaced; or one of a hundred other possibilities. If you don’t plan for these unexpected events, moving into your new home can become your new nightmare.