“Escape From Making The 10 Biggest Blunders When Buying A Home!!!

Mortgage and Lending with Nicholas Napoletano

The 10 Biggest Blunders
You Can Make When Buying A Home!

1. Losing Money With Lower Interest Rates

Some loans have very attractive interest rates (also known as teaser rates) but you may be hit with higher upfront charges.  Points and/or origination fees are the most common ways to lower the rate and charge up front costs.  When searching for a mortgage, ask the lender if they are charging points or origination fees.  Points and origination fees are calculated as a percentage of the loan amount. See example below.

$300,000 Mortgage

1 Point = 1% of the loan amount


$3,000 paid at closing

2 Points = 2% of the loan amount


$6,000 paid at closing

Beware of Adjustable Rate Mortgages (ARM's) and Balloon Mortgages.  ARM rates will adjust depending on the loan.  The ARM rates may adjust as often as every six months but in most cases they adjust after one, two, three, and five years.  Those rates are far more likely to go up when they adjust. The Balloon Mortgage requires the borrower to pay the loan off when it matures, usually between two to seven years.

There are many lending tactics to sell the borrower on a low rate and then charge outrageous fees and costs.  Don't fall into the "bait and switch" lending ploy.

2. Getting a Loan From Your Real Estate Agent or the Mortgage Company in Your Real Estate Agent's Office May Not Save You Any Money

Many real estate companies and individual real estate agents are now offering mortgage loans as well as real estate services.  It has been my experience that some Realtors are not educated enough and do not have the experience to originate mortgage loans.  They spread themselves too thin and it ultimately hurts the borrower.  Realtors sell real estate and Mortgage Companies originate mortgage loans. 

Also, using a mortgage company that is affiliated with a real estate company may cost you more.  It may be slightly more convenient, but it also can be a lot more expensive. Competition drives rates and costs down.  In the controlled business arrangement with a Realtor or a Realtor-owned Mortgage Company, you lose that competition.

3. Buying a Home from the Listing Agent May Not Be In Your Best Interest.

The listing agent is the person who makes an agreement with the seller to sell the home.  The seller agrees to pay the listing agent a commission for marketing and selling their home.  The listing agent is working for the seller and will consider the seller's needs before the buyer's.  Having your own agent (selling agent) does not cost you any more money.  The seller will pay the same commission for the sale if you do or do not have your own agent.  Having your own agent allows there to be someone in your corner.  A selling agent can help you find a house, confirm the value, help with inspections and financing, and answer any other questions you may have.

4. Buying FHA, VA, or IRS Repossessed Homes May Be A Mistake.  

I am not against purchasing a repossessed or discounted property.  In many markets, especially those that are having financial trouble, a repossessed home may make good sense.

However many VA, FHA, and IRS repossessed homes are sold with virtually no warranty.  Also, the borrower may be limited on how much they can inspect the property prior to purchasing it.  Often times these houses are in need of repair and need work.  Not being able to thoroughly inspect the property puts the purchaser in a risky position.

There are some bargain properties, but for the most part investors who have the "know how" purchase them.  Loans with zero or little down payment typically will have higher property standards.

Keep in mind that purchasing this type of property requires bidding for it.  The people you would be bidding against rehab houses for a living, so you may be at a disadvantage from an experience stand point. In addition, most homes that are for sale under these conditions require a substantial up-front deposit that may not be refundable should your loan not close within a specific period of time.

5. Bad Credit Stays On your Record for 7 Years or More.

This is true, but in most cases loans are evaluated on the last 12 --24 months. They may totally disregard ANY adverse credit issues prior to that 12-24 month window. Most of the loans with zero or no money down cater to those who need leniency in the area of credit. 

Also, having not re-established credit doesn't mean you cannot get a loan. There are other means for a lender to establish credit history.

6. Credit Counseling May Harm Your Credit Rating.

In certain instances, consumer credit counseling services may be a wise decision.  These services can provide education and help with debt problems.  The Credit Counseling Company will set a budget for the client based on their income and how much debt there is to pay off.

The problem comes when counseling companies do not meet the client's monthly obligations with their creditors.  As a result, they begin to have late payments on their credit report.  In other words, they may not meet the creditor's minimum monthly payment requirements because the budget calls for a lesser payment.

Overall, credit counseling is an effective tool to reduce debt as long as they meet the client's due dates and the minimum monthly payment.

7. Getting Your Mortgage Loan from the Internet May Cost You

It could be a costly mistake if you get a loan online from a company in different parts of the country.  There are different rules and guidelines for different states, cities, and even counties.  It can be risky to obtain a mortgage loan from a company across the country if they are not familiar with the rules that govern the area where the property is located.

Typically local companies will be more concerned about their reputation and doing a good job for their customer.  I operate from referrals so it is very important that I meet my customers' expectations.  Getting a loan online can also take longer because they will not have service companies (title companies, appraisers, and others) to do the job in a timely manner.

Mortgage loans are complex and may not make sense to purchase online. This is especially true if the borrower is looking for maximum service and care.

8. Working with a Mortgage Lender Who Only Has One Product To Sell May Not Meet Your Specific Needs.

For the fifteen percent (15%) or so of a bank's customers that are "Private Bank Clients"  (big bucks, big money for the bank), the bank may have the best deal for you.  If you don't fall into that category, I would suggest that you get a mortgage lender who has the knowledge and loan programs to meet your needs.

Most lenders only have one source of funds.  This type of lender is forced to "fit" the customer into a prefabricated loan program.  They only have one or two different ways to handle the many different loan situations that occur.

It is important that you research your lender and try and get everything in writing.  Also, it is easy for the wrong lender to take advantage of the borrower because of the borrower's vulnerable position.  Most first time homebuyers need to be educated on the process of purchasing a home.  I feel an educated borrower has the ability to make their own decision, a decision that is best for them.  Often times a lender will make a decision for you based on the loan that will put the most money in their pocket.

9. Paying Upfront Costs Before You Know Exactly What Type Of Loan You Are Being Offered

It is common for lenders to collect for the appraisal and credit report before they even look at your request.  They do this to keep you loyal to them.  Be very careful about what you pay for and when you pay it. Again, get everything from the lender in writing and make sure you are comfortable before you pay them any money.

I do not charge my customers anything during the initial loan process.  They will pay for the services of the vendors we use at the closing.

10. Get A Pre-Approval From Your Mortgage Company Before You Start Shopping For A Home

Having a pre-approved loan can be very important.  A pre-approval has two major benefits.  First, you will have peace of mind before you get serious about buying a home.  You will know how much of a house you can afford, what the payments will be, and how much of a down payment is needed.  Secondly, having a pre-approval may give the borrower bargaining power when negotiating a price for the home. 

For example, if three buyers are looking at the same house, the seller will probably look closer at the buyer who has been pre-approved.  Also, getting pre-approved may allow the borrower to get a better price for the property.

 Take Care

Nicholas Napoletano



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