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Top Mistakes to Avoid when buying a Home
Purchasing a home is the biggest investment most people will ever make. If you're considering buying a home, you're likely aware of the complexity of the endeavor. You must prepare yourself and consider all the factors when purchasing a home. Since your home could cost you 25 to 40 percent of your gross income, it is important to conduct research, ask questions, and study the process carefully.1. Looking for a home without being pre-approved?
As a potential buyer competing for a property might be difficult. You will have a better chance of getting your offer accepted by being as prepared as possible. Consider the three situations:
- Neither pre-qualified nor pre-approved
- Pre-qualified
- Pre-approved
Neither pre-qualified nor pre-approved
This buyer provides no evidence that they can afford to purchase your property. The buyer has not prepared themselves, which makes them not a serious buyer.
Pre-qualified
This buyer has met with a mortgage broker (or lender) and discussed their situation. The buyer has informed the broker regarding their income, expenses, assets and liabilities. The broker may also have seen their credit report. The buyer provided you with a letter from the broker stating an opinion of what the buyer can afford.
Pre-approved
This buyer has provided a broker written evidence of income, expenses, assets, liabilities and credit. All information has been verified by a lender. As a result, much of the paperwork for this buyer's loan has been completed. This buyer will probably be able to close quickly. They provide you with a letter (pre-approval certificate) from the lender. You're as certain as possible that this buyer can close.
As a potential buyer, you can see that being pre-approved will give you the best chance of getting your offer accepted. This is critical in a competitive situation.
2. Making verbal agreements. If you're asked to sign a document containing instructions contrary to your verbal agreements--don't. The written contract will override the verbal contract. More importantly, your state may require that contracts for the sale of real property be in writing. Do not expect oral agreements to be enforceable.
3. Choosing a lender just because they have the lowest rate. While the rate is important, consider the total cost of your loan including the APR, loan fees, discount and origination points. When receiving a quote from a lender or broker, insist that the discount points (charged by the lender to reduce the interest rate) be distinguished from origination points (charged for services rendered in originating the loan).
The cost of the mortgage, however, shouldn't be your only criterion. Have confidence that the company you select is reputable and will deliver the loan with the terms and costs they promised. If in the final hours of the transaction you determine that the lender has suddenly increased their profit margin at your expense, you won't have time to start again with a different lender. Ask family and friends for referrals.
4. Not receiving a Good Faith Estimate. Within three business days after the broker or lender receives your loan application, you must receive a written statement of fees associated with the transaction. This is both the law and the best way to determine what you'll pay for your loan. Bring the Good Faith Estimate (GFE) with you when you sign loan documents. You should not be expected to pay fees which are substantially different from those contained in your GFE. Keep in mind that it is nearly impossible to give exact figures before closing because of the differences in each county and third party fees, but a GFE will give you a good idea of what kind of costs are involved.
5. Not getting a rate lock in writing. When a mortgage company tells you they have locked your rate, get a written statement detailing the interest rate, the length of the rate lock, and program details.
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