- Not comparison shopping! You don't want to assume that your current mortgage lender has the best rates. They already have your business- where is the incentive to provide you with competitive prices?
- Not completing a break-even analysis. This is a major tool to help you decide whether the benefits will outweigh the costs.
- Not getting a Good Faith Estimate. This estimate is vitally important-not only will it tell you exactly what your rate is and what your closing costs are, but it will make sure the lender abides by them. Know that your lender is, by law, required to provide the estimate within three days of your completed loan application.
- Not reading all documentation carefully before you sign. Please never sign a document without reading through it thoroughly; and if you don' t understand something- ask! Chances are, you will not get another opportunity, and you don't want any surprises concerning your mortgage payments.
- Assuming that your lender will disclose all pertinent information to you. Under the Truth in Lending law, lenders are required to disclose certain things, but not others, such as whether or not your mortgage comes with a pre-payment penalty. Be sure and ask: if your mortgage does come with a penalty then try to get as low a fee as possible. Also, your GFE is just that- an estimate. Make sure to get the total lender fees and closing costs in writing, and have your lender sign it. This is protection against out of control fees at closing.
- Not locking down the interest rate, or failing to get the locked rate in writing. Until you “lock” your interest rate with your lender, it will be “floating” and that means it can increase during your negotiations and during the application process. It can also decrease, but the important thing is to lock the rate when you feel it is the right time, and make sure to get it in writing. If you have an ARM, get the margin in writing as well.
When Buying a Home:
- Not getting pre-approved first. Don't confuse pre-qualification with pre-approval. Pre-qualification is a much shorter process, where the loan officer uses certain underwriting tactics to analyze how much of a mortgage you can afford to pay. Generally, there is no fee for pre-qualification. Pre-approval is a much more in-depth process, where the lender does at least a cursory check of your credit, income, assets, and occupation. Most realtors will not work with a buyer unless they are pre-approved, or at least pre-qualified, and it gives the buyer leverage when negotiating with the seller.
- Choosing a lender based on someone else's recommendations, especially your Realtor. Unless the person is a financial expert and works in the field, do not pick a lender completely based upon someone else's opinion. Do your own fieldwork.
- Not getting agreements in writing. This cannot be emphasized enough: any verbal agreements are overridden by those within the contract. The basic rule of thumb is that if it's not in writing, it doesn't exist.
- Buying a home without having independent inspections done. Would you buy a used car without having a mechanic inspect it first? Offer to pay for a series of independent inspections, including termite, roof, heating ducts, plumbing, and gas.