House hunting without getting pre-approved
Many home buyers confuse pre-approval with pre-qualification. None of your information is verified during the pre-qualification process (which usually amounts to just a phone call between you and your mortgage broker). During the pre-approval process, your financial information is verified, your credit is pulled, and your application is reviewed by a lender. Many home buyers go house hunting in the $300,000 price range only to find out later that they are only qualified for $250,000. Pre-approval allows home buyers to shop with confidence. Sellers’ real estate agents are also skeptical when it comes to offers from buyers who are not pre-approved. Understandably, they don’t want to take the house off the market only to have the deal fall through when the buyer is unable to qualify for financing. If you want the seller to take your offer seriously, get pre-approved and submit your pre-approval letter with your offer. This one tactic could give you the edge when it comes to competing offers.
Failure to buy owner’s title insurance
Title insurance provides protection if it is later discovered that the title is imperfect. If a title dispute does arise, a homeowner who has a title insurance policy is protected. Borrowers are required by lenders to purchase title insurance that benefits the lender (to cover the loan amount), but it’s up to the borrower whether or not to purchase owner’s title insurance. Owner’s title insurance protects the homeowner’s equity in the home. If a title dispute arises and a homeowner is without title insurance, it can get really ugly. Some homeowners lose all equity in the home, the home itself and last but not least-they are still on the hook for the balance of the loan! Unfortunately, some borrowers wind up paying a mortgage on a home that they no longer own because they failed to purchase owner’s title insurance. The good news is that owner’s title insurance is relatively cheap ($200 is in the ballpark), and it is only paid once at closing.
Failure to review the closing documents prior to closing
Borrowers have to sign a stack of documents at closing, and many borrowers are so overwhelmed that they just sign whatever is put in front of them. Unfortunately, many borrowers are shocked at the closing table when they discover that the mortgage terms in the closing documents are not the terms that they originally agreed to. The best thing to do is to ask to receive the documents prior to closing. This can be arranged through your title company, and you can review the documents in the comfort of your own home a few days before the actual closing.
Not knowing your credit score
Most borrowers do not know their credit score, and some get taken advantage of by unscrupulous mortgage brokers. Now that the mortgage bubble has popped, we now know that many borrowers who were put in sub-prime loans (for people with not-so-good credit) were actually qualified for standard loans. However, these unwitting borrowers were placed in these sub-prime loans because these loans generated higher fees to mortgage companies and lenders. You can check your FICO score at www.equifax.com, and then you will know where you stand before you go mortgage shopping.
Changing jobs
Lenders seek to verify employment for the previous two years. Your income could be disqualified if you change jobs during the home loan application process. Changing jobs within the same industry with little or no downtime (30 days or less) is acceptable to most lenders. But remember that changing careers during the loan process could jeopardize your loan. Before you take a new job offer, talk to your mortgage broker to determine if the change could upset the home loan process.
Buying things on credit during the mortgage application process
Do not take out new credit during the home loan process even if you are already pre-approved. Remember that lenders can pull the plug on a loan anytime prior to the time that the funds are disbursed. Buying a new TV on a payment plan, leasing a new car, or charging furniture before closing could jeopardize your loan. Opening up new lines of credit or increasing balances on existing lines of credit is harmful to your credit score. To be on the safe side, do not make changes to your credit profile until after closing.
Choosing the Good Faith Estimate with the lowest “Total Settlement Charges”
The GFE is a one page document that provides an estimate of all charges likely to be incurred at closing. The mistake that most borrowers make is that they fail to look at the individual numbers and go straight to the “Total Estimated Settlement Charges,” which is located near the bottom of the GFE. Most of the charges on the GFE are out of the mortgage broker’s control. These include items such as title insurance, tax stamps, pest inspection, hazard insurance, and mortgage insurance as well as prepaid taxes and insurance. One common mortgage broker trick is to underestimate these charges to make the total settlement charges number look more attractive. When comparing mortgage brokers, disregard sections 1100, 1200, 1300, 900 and 1000 of the GFE. The charges in these sections are out of your mortgage broker’s control. Instead, focus on section 800 where the true differences in pricing are likely to be seen.
Too-short lock period
If your lock expires, you will be charged either the current market rate or the original lock-in rate, whichever is higher. This is standard policy with lenders. Make sure that your lock period allows sufficient time to close.
Failure to do a final walkthrough of the home
Prior to closing you and your real estate agent (if you are working with one) should do a final walkthrough of the property. Take pictures of the home at the time that you sign the purchase agreement. Bring these pictures with you when you do the walkthrough. These pictures are proof of what was inside the home. Sellers are notorious for swapping expensive appliances and fixtures with cheap replacements, doing damage to the home when they move out, and failing to complete repairs stated in the contract. To make sure everything is as it should be, do a final walkthrough so that any grievances can be addressed prior to closing.
Coming to closing with no money
Some borrowers forget to bring a check to the closing table, and their closings are unnecessarily delayed. Remember that a personal check will not do. Bring a cashier’s check to closing; otherwise your closing will be delayed.
Wade Young is a Colorado mortgage broker. His website is bursting with consumer information about credit scores and mortgages. http://www.reddoorhomeloans.com
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