If you are preparing to buy a home of your own, then check out the top 12 home-buying mistakes that most people often commit. Being aware of such mistakes will prevent you from falling into traps just like others.
1. Not being aware of mortgage:
There is a general perception that mortgages are meant for people with moderate and high income levels. Those with low income or poor credit avoid going for such a loan because they feel either they won't qualify for it or won't be able to pay the charges and interest payments associated with it.
However, there are plenty of programs with special features available for borrowers with different income level. What buyers need is a little knowledge of mortgage and its pros and cons so that they can purchase their dream homes using the best program available.
2. Find a home without pre-qualification and pre-approval:
There are buyers who start shopping for a home without getting pre-qualified and pre-approved. The seller knows nothing about their income and credit status and as such cannot make out as to how much they can invest in a home. But if you get pre-qualified with a broker or lender before seeking a home, you can convince the seller of your ability of getting a mortgage loan.
A letter from the lender or broker to the seller can further improve your chances of getting the home of your choice.
3. Not shopping around for the best lender:
Borrowers usually try to go for lenders who offer the lowest interest rate. But there is the annual percentage rate which includes additional costs like loan processing fee, loan origination fee or origination points etc. Besides the costs involved, the lender's reputation and his services are worth considering.
4. Buying a home without home inspection:
Home inspection helps to find out whether there is scope for repair in the property. The reports of such inspection help you negotiate with the seller to reduce the transaction costs. But the repairs should be done prior to paying escrow fees required in mortgage.
5. Making verbal statements:
Home buyers are often asked to sign documents that contradict their verbal statements. Moreover, your state may require you to make a sales contract in writing. So it is better that you don't make verbal agreements; rather go for written statements with your seller.
6. Signing documents without checking:
Buyers often sign documents without reading them. These documents are standard forms and are available for review. But you may not be able to read them all at closing. So you should go through them prior to closing and avoid difficult situations in mortgage and home buying transactions.
7. Not getting a Good Faith Estimate:
You need to look around for any hidden fee (document preparation fee, notary fee etc) involved in the loan process. So, go through the Good Faith Estimate (GFE) provided by the lender and you'll get an account of the fees associated with the mortgage.
You should receive the GFE within 3 business days of applying for the loan. This prevents you from paying hidden and unnecessary fees. So, if you aren't getting one from the lender, request him to provide you with a copy of it.
8. The rate-lock is not made in writing:
Get a written agreement of the rate-lock offered by your lender. This agreement includes the interest rate, period of rate-lock and other details of the loan program.
9. Lock in at low interest rates:
Majority of buyers wait for market rates to decrease before going for a rate lock. But the reverse may happen. The interest rates may increase and you may have to pay more. However, you can avoid this by keeping a close watch over the rise and fall in market rates. This will help you to lock in at a lower rate.
10. Use an agent who represents both buyer and seller:
You can take help from an agent to lower the costs of the home buying transaction. But agents representing both parties negotiate preferably on part of the seller for getting commission from the latter. Therefore, it is better to choose an agent who will negotiate solely on your behalf and help you save.
11. Terminating the lease on the date of closing:
You may ask your landlord to terminate the lease just on the day of closing. But this can lead you into trouble if the closing is delayed by a week or so. Therefore, the lease should be terminated a week after the closing so that you can avoid further problems in the transaction.
12. Shopping for home insurance just before closing:
There are buyers who look out for homeowner insurance policies just before the closing. But they fail to shop around in the last minute. Hence, it is better to search for the best policy as soon as a lender approves your loan.
No doubt, you cannot reverse each and every home buying mistake as some of them may have long term effects. But if you can try and avoid some of the major mistakes, chances are that your home buying process will be smoother and faster.
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