If you're like most people, buying a home is the biggest investment you'll ever make. Annual mortgage, taxes and insurance costs can range from 25% to 40% of your gross annual income.

By visiting this reference page, you're on your way to protecting yourself, and making the mortgage process easier by becoming an informed consumer.

Read, talk to family, friends and real estate professionals. You'll be glad you took the time to understand the process.

Mistakes when buying a home
  1. Looking for a home without being pre-approved.
    Pre-approval and pre-qualification are two different things. During the pre-qualification process, a loan officer asks you a few questions, then hands you a "pre-qual" letter. The pre-approval process is much more thorough. During the pre-approval process, the mortgage company does virtually all the work associated with obtaining full-approval. Since there is no property yet identified to purchase, however, an appraisal and title search aren't yet conducted. When you're pre-approved, you have much more negotiating clout with the seller. The seller knows you can close the transaction because a lender has carefully reviewed your income, assets, credit and other relevant information. In some cases (multiple offers, for example), being pre-approved can make the difference between buying and not buying a home. Also, you can save thousands of dollars as a result of being in a better negotiating situation. Most good RealtorsŪ will not show you homes until you are pre-approved. They don't want to waste your, their, or the seller's time. Many mortgage companies will help you become pre-approved at little or no cost. They'll usually need to check your credit and verify your income and assets.

  2. 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 rates while others may quote zero point rates. This confusion can be overcome by always getting a Good-Faith Estimate (GFE) of closing costs from the Lender. The GFE should disclose and categorize each fee that will be paid by you to obtain the mortgage. Lenders are required to provide you, within 3 days after receipt of your completed loan application, a written good-faith estimate of closing costs. However, we recommend that you request a GFE before submitting your application. With a few GFEs to compare, you can educate yourself regarding the costs associated with your transaction. WARNING: It is very common for unscrupulous mortgage companies to understate their closing costs on the GFE. As a result, the total costs on a GFE should not be your only factor when deciding which lender to use. There is no substitute for asking family and friends for referrals and for interviewing prospective mortgage companies before you decide which lender is committed to your best interests and will deliver what they promise.

  3. Choosing a lender because they are recommended by your RealtorŪ.
    Your Realtor is not a financial expert. He or she may not know which loan is best for you. Your RealtorŪ gets a commission only when your transaction closes. As a result, the RealtorŪ may refer you to a lender who will close your loan, but who may not have the best rates or fees. Also, many RealtorsŪ refer you to one of their friends in the loan business--who also may not have the best rates or fees. Although most RealtorsŪ are professional and concerned about your best interests, you should do your own homework. We recommend shopping for a loan with at least three mortgage companies before you make a decision. There are countless stories of consumers who ended up paying higher rates, or got a loan that wasn't right for them, because they blindly followed their Realtor'sŪ advice.

  4. 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 and the length of the rate lock. It is common for consumers to assume they are locked when many times they are not. If this is true and rates increase you may be stuck with a higher rate.

  5. 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 a property inspection report by a professional inspector. These reports will give you a better picture of what you're 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 making them. If the seller agrees to make repairs, have your inspector verify the completed work prior to closing. Do not assume that everything will be done as promised.

  6. 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 no time left to shop around. The cost of home insurance can vary dramatically between insurance companies.

Mistakes when refinancing your home
  1. Refinancing with your current lender without shopping around.
    Your current lender may not have the best rates and programs. Believing it's easier to work with your current lender is a common misconception. In most cases, they'll require the same documentation as other lenders and mortgage brokers. This is because most loans are sold on the secondary market and have to be approved independently. Even if you've been good at making payments to your existing lender, they'll still have to process the verifications all over again.

  2. Not doing a break-even analysis.
    Determine the total transaction costs and how much you'll save each month by lowering your monthly mortgage payment. Divide the transaction costs by the monthly savings to determine the number of months you'll have to stay in the property to recoup your refinancing costs. For example, if the costs of refinancing total $2000, and you save $50 per month, you break-even in 2000/50 = 40 months. In this case, you should only refinance if you plan to stay in the home for at least 40 months. Note: The above example is suited to comparing two similar loans when the intent is to lower your monthly payment and recoup transaction costs relatively quickly. Other refinancing transactions require different kinds of analyses which are beyond the scope of this example. .

  3. 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 rates while others may quote zero point rates. This confusion can be overcome by always getting a Good-Faith Estimate (GFE) of closing costs from the Lender. The GFE should disclose and categorize each fee that will be paid by you to obtain the mortgage. Lenders are required to provide you, within 3 days after receipt of your completed loan application, a written good-faith estimate of closing costs. However, we recommend that you request a GFE before submitting your application. With a few GFEs to compare, you can educate yourself regarding the costs associated with your transaction. WARNING: It is very common for unscrupulous mortgage companies to understate their closing costs on the GFE. As a result, the total costs on a GFE should not be your only factor when deciding which lender to use. There is no substitute for asking family and friends for referrals and for interviewing prospective mortgage companies before you decide which lender is committed to your best interests and will deliver what they promise.

  4. Using the county tax assessor's value as the market value of your home.
    Mortgage companies do not use the county tax assessor's value to help determine if they'll originate your loan. Appraised values and assessed values can differ widely for many reasons.

  5. Not providing your mortgage company with documents in a timely manner.
    When your mortgage company asks you for additional paperwork--get cracking! They're trying to get you approved! If you don't quickly respond to your broker's requests, you could end up paying higher rates should your rate lock expire.

  6. Getting a second mortgage before you refinance your first mortgage.
    Many mortgage companies look at the combined loan amounts (i.e., the sum of the first and second loans) when you are refinancing only your first loan. If you plan on refinancing your first loan, check with your mortgage company to see if having a second loan will cause your refinance to be turned down.

 
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