Whether you are planning to buy your first or second home or refinancing your current mortgage, making the right choices now can save you thousands of dollars over the life of your loan. Understanding the past practices of other people will help you make the right choices for your future. I present the
14 most common mistakes when applying for a mortgage.
1. Not knowing your loan officer.Not taking the time to get to know your loan officer will affect the relationship that you should be having. This person will assist you in analyzing your situation and placing you into the right loan. In addition, the loan officer should always follow-up with his/her client's. This keeps you well informed and able to make choices about your loan. A loan officer should help you make those choices when selecting the loan type and the right rate. If everything is out in the open, right from the start, the choices you make will be much easier. The Ziem Team sends update letters and make calls to their clients throughout the loan process.
2. Waiting to get pre-qualified.Most people think they can not qualify for a loan because of a lack of money or credit. The sooner you get pre-qualified; the sooner you can determine the path you need to follow in order to purchase a house you can afford. For example, if you are not happy with the amount you can afford, you might wait a few more months before looking for a house. On the other hand, a mortgage specialist can help you understand ways to control your debt and or obtain credit to benefit you later when applying. Being pre-qualified also lets a realtor know that you are ready financially for a home. By knowing what you can qualify for, allows a realtor to look for a home in your price range that you can be confident you can afford. The Ziem Team prequalify between 10-15 clients each week.
3. Not understanding the term "points".A point is a percentage of a loan amount. On most purchases a borrower will encounter a 1-2% charge for the loan process, which is paid at closing. When a person refinances, he/she can have all closing costs rolled into the loan amount. In a refinance, a borrower will see a .5-1% charge included in the closing costs. Points are used to pay a mortgage specialist for their work. These can be negotiated between the client and specialist. But don't forget that paying points can allow you the opportunity to have the lowest possible rate available.
4. Choosing a lender because they have the lowest rate. Not getting a written good-faith estimate. While rate is important, you have to consider the overall cost of your loan. Pay close attention to the APR, loan fees, discount and origination points. Some lenders include discount and origination points in their quoted points. Other lenders may only quote discount points, when in fact there is an additional origination point (or fraction of a point). This difference in the way points are sometimes quoted is important to you. One lender will quote all points, while another lender may disclose an extra point, or fraction thereof, at a later time--an unwelcome surprise. Within 3 working days after receipt of your completed loan application, your mortgage company is required to provide you with a written good-faith estimate of closing costs. You may want to consider requesting a GFE from a few lenders before submitting your application. You can get a feel for which lenders are more thorough, and you can educate yourself regarding the costs associated with your transaction. The GFE with the highest costs may not indicate that a particular lender is more expensive than another--in fact; they may be more diligent in itemizing all fees. The cost of the mortgage, however, should not be your only criteria. You must also feel comfortable that the loan officer you are dealing with is committed to your best interests and will deliver what they promise.
5. Not aware of the undisclosed fees, failing to review the Good Faith Estimate. A Good Faith Estimate is a page in a loan application that presents all the figures in the loan to the customer. All figures should have a dollar amount or should reflect an n/c (no charge) on the line. An experienced mortgage specialist will always go over the Good Faith Estimate in detail. At the time of closing, the figures explained to you in the Good Faith Estimate should closely reflect the fees you are charged at your closing. Actually, most mortgage specialists will review the official closing fees for your loan the day before the closing to alleviate any problems on the day of closing.
6. Selecting the wrong loan product for your situation.By analyzing your situation, a mortgage specialist should be able to place you in a loan that will save you money and or time on your mortgage. The loan should be centered on the client's needs rather than specialist's pocket. An experienced mortgage specialist will know the difference between a conventional loan and a non-conventional loan; full doc vs. stated or no income-no asset, FHA, 100% financing, etc. He/She should be able to explain to you the reasons for placing you into a loan and how it will benefit you in the long run. Please keep in mind that there is a number of other factors (credit score, income level, debt-to income, Loan-to Value, owner occupied vs. non-owner occupied) that contribute to the type of loan a mortgage specialist can place you into.
7. Being dishonest through the information gathering process.Giving false information may seriously jeopardize the loan process. It will place stress on the relationship you are supposed to build with your mortgage specialist. The information-gathering portion of the relationship is extremely important. At this time, the mortgage specialist is learning as much as possible about your situation. By giving false information, the loan product given to you will in the end not be of any value to you because of missing information and will only make the process much longer. A bank will check and re-check all information given to them since lending money to people is a very risky task for a banker.
8. Not knowing what your income is, don't overestimate.Again the information gathering portion of the relationship should be extremely honest. The bank will verify your income using several methods so you need to be honest from the start. By not presenting the correct information the banks will double and triple check your loan and if they can not confirm your income is what you claim then they can deny your loan. When pre-qualifying, a mortgage specialist will ask for the last two years W-2's, 1099's (self-employed), last two pay stubs and bank statements.
9. Out of control debtBy having too much debt, it will hinder the process of obtaining a low interest rate for your loan. If you have more than 15% of your monthly gross income going to debt, you most likely will not quality for a loan. If this is the case, you should speak with a mortgage specialist to get a prequalification. He/She will be able to analyze your situation and recommend what actions to take. During the prequalification, the mortgage specialist should do a credit analysis where he/she will explain to you how you can consolidate your debt.
10. Know the difference in rates, quoted vs. real.There are only two ways to look at rates---quoted and real. Many lenders today will give you a quoted rate, but that is not always the rate you will end up with at closing. If the rate increases from the time you signed your Good Faith Estimate by more than 1% then there is reason for concern. Unfortunately in the real world, interest rates adjust everyday, but a significant difference in the rate on your Good Faith Estimate and your final rate should be a red flag for predatory lending.
11. Not taking care of your credit.A mortgage specialist will need to pull your credit to do an analysis. A three digit FICO score can be given to an individual within minutes. Your credit is usually pulled from the three big credit agencies, Experian, Transunion, and Equifax. This score needs to be between 500-900. Anything below a 500 FICO score will not be accepted from a bank. Keep in mind every time your credit is pulled it drops a few points. For example, there was a man ready to close within a week and he decided to go car shopping on a Thursday. He went to 11 different dealerships and had each one pull his credit. The next day, he was denied a mortgage because his credit dropped below 500. This is a fact that is unknown by many but is unfortunately a true one. Also using internet sites for loan shopping can be very dangerous for your credit since many banks are pulling your credit in a very short amount of time. If you are in the process of getting a loan you should not apply for any new credit including a new car or a new credit card.
12. Buying a home without professional inspections. Taking the seller's word that repairs have been made. Unless you're buying a new home with warranties on most equipment, it is highly recommended that you get property, roof and termite inspections. These reports will give you a better picture of what you are buying. Inspection reports are great negotiating tools when it comes to asking the seller to make repairs. If a professional home inspector states that certain repairs need to be made, the seller is more likely to agree to make them. If the seller agrees to make repairs, have your inspector verify the completed work prior to close of escrow. Do not assume that everything will be done as promised.
13. Not shopping for home insurance until you are ready to close. Start shopping for insurance as soon as you have an accepted offer. Many buyers wait until the last minute to get insurance and find they have to time left to shop around.
14. Making moving plans that do not work. You expect to move out of your current residence on Friday and into your new residence over the weekend. Also on Friday, your lease terminates and the movers are scheduled to appear. Friday morning arrives: bags packed, boxes stacked, children under arm and the dog on a leash; you are sitting on your front door stoop awaiting the arrival of the movers. Your phone rings. Your loan closing is delayed until the following Tuesday. The new tenants turn into your driveway with a weighted-down U-Haul and the movers pull up across the street. You ask yourself, "Where is the nearest Motel 6 and storage facility? How much will the movers charge for an extra trip? Can we afford it?" How can you avoid such a disaster? Cancel your lease and ask the movers to show up five to seven days after you anticipate closing your transaction. Consider the extra expense an insurance policy. You are buying peace of mind--and protecting yourself from expensive delays. Keeping these key components in mind, you are now ready to obtain a mortgage that you will not have to worry about. This is important information given to you for the benefit of helping you make the right choices for your loan. To work with a dedicated "Ziem" Team call 609-296-2102 ask for Shawn Ziem.
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