With mortgage rates at their lowest level in some time, it's a great time to obtain a mortgage for that long-dreamed about home. But it's also a bad time to overlook certain things in the mad dash to sign on the dotted line. Steer clear of the following pitfalls, and you should fare well.
Mistake Number One: Not Doing Your Homework
Mistake Number Two: Not Getting the Right Loan for You
A loan is a product, and just as in life, one size doesn't always fit all. Oftentimes lenders want to sign up people for the same type of mortgage. Hence you may be offered a loan that is inappropriate for your needs. Decide what loan is right for you. If you intend to trade up to a bigger house in a few years, an adjustable mortgage may be the right one for you, but if you intend to stay in your home longer, you should probably opt for a fixed rate. You'll pay a higher rate, but you won't be subject to "payment shock" that sometimes comes with some adjustable-rate mortgages (ARMs).
Mistake Number Three: Not Getting a Lock-in Rate in Writing
A mortgage broker or mortgage company representative can tell you that a rate will be locked in, but such talk won't help you at closing if the rate has changed and you've got no written proof of the previous arrangement. As a famous baseball coach once said, "A verbal promise isn't worth the paper it's printed on." Get a statement detailing the interest rate, the length of the rate lock and additional details of the loan before proceeding with your purchase.
Mistake Number Four: Thinking a Pre-qualification Means a Pre-approval
Laura E. Shifrin, a top broker at Townsend Center Realty in Townsend, Massachusetts, says some people pin their home-buying hopes on a mortgage pre-approval. "They think they go out and can afford a certain type of house and they can't," she explains.
"Unfortunately, they can't buy anything until their credit has been checked and the down payment ratios determined," Shifrin says. Pre-qualifying is just a quick credit check based on the information an individual provides. A pre-approval, on the other hand, means a mortgage professional has checked the employment history, verified funds, studied an individual's credit record and so forth. Getting pre-approved rather than pre-qualified saves a lot of heartache.
Mistake Number Five: Taking on Too Much Mortgage
"Sometimes a mortgage person is so anxious to get you into another house that they will 'massage' the numbers to get you a mortgage," says Jeannine Kees, broker/owner at Century 21, The Moore Group, in Orangeburg, South Carolina. "That may seem like a nice thing to do at the time, but once you get into your house, you might discover that you are financially strapped and might not be able to make the payments."
