When getting a mortgage, steer clear of 7 mistakes
Don't focus just on the home you want -- consider how you will pay for it.
Jim DebothSpecial to the Sentinel November 27, 2005 Orlando Sentinel
Buying a home is probably the biggest financial decision any of us ever makes, especially if it's our first house. Though you might focus on finding the perfect house, you also should spend time thinking about how you will pay for it.
We'll look at the seven costliest mistakes consumers make when shopping for a mortgage.
No. 1: Talking to lenders before checking your credit report for mistakes. If you find mistakes, give yourself time to get them corrected. You are entitled to one free credit report every year from each of the big three credit reporting agencies. To order, go online at annualcredit report.com.
No. 2: Dealing with the wrong lender. Ask friends and relatives about their mortgage lenders and whether they were satisfied with the service and the loan. Talk to at least three lenders and ask them the same questions about interest rates, points and the cost of the loan. Compare their answers. Compare their personalities. Do you like them? Do you trust them?
No. 3: Looking for a home before you look for a mortgage. In fact, you should get pre-approved for a mortgage and then go looking for a home that the mortgage can buy. Some real estate agents won't even take you house hunting until they see your letter of approval.Getting pre-approved, however, means a lender has examined your required paperwork and approved you for a loan for a specific amount of money. When you couple that amount with the down payment you plan to make, you will know how much house you can afford.
No. 4: Borrowing either too much or too little money. Just because you're approved for a loan of $250,000, for example, doesn't mean that you must borrow all $250,000. The approval amount simply is a ceiling limit.The key point to remember is that you determine how much -- or how little -- you want to spend for a house and how big a monthly payment you want to make. The lender wants to loan you as much money as possible, and the real estate agent wants to sell you the most expensive home possible.You, however, set the limits, so be realistic. Tell the real estate agent what price range you are interested in, and if you don't like what the agent shows you, find another agent.
No. 5: Failing to plan for the unexpected. Tornados and other natural disasters such as floods, tsunamis, earthquakes and wildfires, can strike without warning. So can illnesses and injuries, job lay-offs and other physical and fiscal disasters. One of the first questions you should ask yourself is how long you and your family could manage without a paycheck.How much money do you have in savings, stocks, bonds or bank certificates of deposits? Financial planners suggest you have at least enough money on reserve to cover you and your family's expenses for three full months if the paychecks suddenly stopped or you had to cover a medical or other emergency.
No. 6: Not knowing everything you should about your specific loan. That includes why you obtained this loan instead of another. For example, with a traditional 30-year fixed-rate conventional loan, your monthly payment will be the same for the life of the loan. You also can get similar loans for 15, 20 and even 40 years. Adjustable-rate mortgages start with a lower interest rate that later can adjust up or down.No one buys a home without examining it thoroughly, from top to bottom. You should do the same with your mortgage.
No. 7: Not knowing the full cost of home ownership. If you always have been a renter, you might be in for a few surprises. As a renter, the landlord is responsible for maintenance, upkeep and repairs. The landlord also pays the property taxes and special assessments. Once you sign the final papers, those responsibilities are all yours, and they can be expensive. So you should make a list and estimate these costs when you are figuring how much you can pay toward your home each month.
