Top 10 Home Loan Process Mistakes (1)

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 home-buying 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.

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 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 Realtors® 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. Making verbal (oral) agreements! If an agent tries to make you sign a written document that is contrary to their verbal commitments, don't do it! For example, if the agent says the washer will come with the home, but the contract says it will not--the written contract will override the verbal contract. In fact, written contracts almost always override verbal contracts. When buying or selling real estate, abide by this maxim: Get it in writing!

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 points. Other lenders may only quote discount points, when in fact there is an additional origination point (or fraction of a point).This difference in the way points are sometime quoted is important to you. One lender will quote all points, while another lender may disclose an extra point, or fraction thereof, at a later time--an unwelcome surprise.Within 3 working days after receipt of your completed loan application, your mortgage company is required to provide you with a written good-faith estimate (GFE) of closing costs. You may want to consider requesting a GFE from a few lenders before submitting your application. With a few GFEs to compare, you can get a feel for which lenders are more thorough, and you can educate yourself regarding the costs associated with your transaction. The GFE with the highest costs may not indicate that a particular lender is more expensive than another--in fact, they may be more diligent in itemizing all fees.The cost of the mortgage, however, shouldn't be your only criteria. There is no substitute for asking family and friends for referrals and for interviewing prospective mortgage companies. You must also feel comfortable that the loan officer you are dealing with is committed to your best interests and will deliver what they promise.

4. Choosing a lender because they are recommended by your Realtor®.Your Realtor is not a financial expert. He or she may not know which loan is best for you. Your Realtor® gets a commission only when your transaction closes. As a result, the Realtor® may refer you to a lender who will close your loan, but who may not have the best rates or fees. Also, many Realtors® refer you to one of their friends in the loan business--who also may not have the best rates or fees. Although most Realtors® 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's® advice.