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Today we wanted to discuss the 6 biggest potential mortgage mistakes, and how you can avoid falling victim to them - we know that it can sometimes be difficult to understand your mortgage. It is sometimes difficult to determine which loan would work best for you, so we are going to cover six major mistakes that people often make.
How to Avoid the 6 Biggest Mortgage Mistakes
Today we wanted to discuss the 6 biggest potential mortgage mistakes, and how you can avoid falling victim to them - we know that it can sometimes be difficult to understand your mortgage. It is sometimes difficult to determine which loan would work best for you, so we are going to cover six major mistakes that people often make.
- Not Comparing Lenders: When you refinance you probably just go to your bank and use the loan packages that they offer. However, a mortgage broker can shop around and find you the best types of loans. It's also not all about the interest rate that you get on the loan, because customer service can also make a huge difference within the loan process. You need a lender that can answer all of your questions, and who can be ready to help you at any point in time. These are a few of the reasons that we recommend our clients to work with American Financial Network.
- Using a Friend or a Relative: We all want to work with someone that we trust, but working with a friend can cost you thousands of dollars, and perhaps a relationship. You should choose a professional lender every time. Just remember the old adage: Never mix family and business together.
- Believing that Advertised Rates are What You Will Ultimately Pay: Unless you have perfect credit, most advertised rates are way out of your league. To get rates that good you have to pay part of a point, which is 1% of the loan amount. Your lender is sure to pick apart your credit score and raise your rate for any reason whatsoever. The lender will also qualify you at the beginning of the transaction, and then run your credit again, possibly a day or two before you close the loan. If there has been any change in your debt-to-income ratio (DTI), then you can say goodbye to that low interest rate.
- Not Paying Attention to Terms: Even if you have perfect credit, you will likely not receive the advertised rates. The true cost of the loan is the Annual Percentage Rate (APR) which includes fees from the lender. There are many ways a lender can inch up your fee, such as the loan origination fee (the processing fee) which pays the loan officer and can vary wildly from lender to lender. You should remember that all terms are negotiable, so if you don't know what you're being charged for, don't be afraid to ask.
- Waiting for a Better Rate: You don't want to lose the home of your dreams over a quarter point in interest. No matter what your interest rate is, you're still going to be paying thousands of dollars in interest up front before you make any serious gains in equity. If you go all the way to the end of your loan's term, you'll pay so much interest that you could have bought the same home 2-3 times. Instead of focusing on the percentage rate, learn how quickly you can build equity. Make one extra payment per year if you can to help offset the rate that you are paying. Down the road if rates drop you might want to refinance, but even that is not an ideal solution because you're going to pay the same origination fees, appraisal fees, etc. It's like paying the closing costs for your home again, and your money will be going back to paying interest instead of principal.
- Choosing the Wrong Type of Loan: The type of loan you choose should depend on current market conditions and how long you plan to stay in your home. Current market conditions favor fixed rates because rates are rising from all time lows. If you choose to get an adjustable rate mortgage (ARM), you will be at the mercy of the market. Although there is a cap on how high your interest rate can go, there is still a risk. If you plan on living in your home for 5 years or more, get a fixed rate mortgage. It takes most buyers 5 years to earn back their original closing costs in equity. Once you've narrowed your choice of lenders, ask them on the same day to give you a quote because rates are continually changing. Ask your lender questions about loan types (VA, FHA, Conventional). You should know what you're getting before you commit to a certain lender.
Hopefully all of this information has been helpful to you. If you have any more questions about mortgage loans, then please feel free to contact us and we can refer you to one of our experts. Also, if you're searching for real estate in LA or Southern California, then please do not hesitate to contact us.
You can also contact American Financial Network by calling (909) 606-3905 or clicking here.
You can also contact American Financial Network by calling (909) 606-3905 or clicking here.
