Mistakes to Avoid
For most people, purchasing a home is the biggest investment they'll ever make. It’s important to take the time to understand potential pitfalls.
Looking for a home without being pre-approved. As a potential buyer competing for a property, you'll have a better chance of getting your offer accepted by being as prepared as possible. Imagine you're a seller with offers to purchase your property from several buyers. A complete stranger (buyer) is asking you to take your property off the market for at least the next two to three weeks while they apply for a loan. As the seller, which of the following buyers would you prefer to deal with?
Neither pre-qualified nor pre-approved: This buyer provides no evidence that they can afford to purchase your property. You may wonder how serious they are since they're not at least pre-qualified.
Pre-qualified: These buyer have met with a mortgage broker or lender and discussed their situation. They have informed the broker regarding their income, expenses, assets and liabilities. The broker may also have seen their credit report. The buyers provided you with a letter from the broker stating an opinion of what the buyer can afford.
Pre-approved: This buyer has provided a broker written evidence of income, expenses, assets, liabilities and credit. All information has been verified by a lender. As a result, much of the paperwork for this buyer's loan has been completed. This buyer will probably be able to close quickly. They provide you with a pre-approval letter from the lender. You're as certain as possible that this buyer can close.
As a potential buyer, you can see that being pre-approved will give you the best chance of getting your offer accepted - a crucial advantage in a competitive market. Depending on a seller’s motivation, they may accept a lower priced offer over a higher, but less solid offer.
Being persuaded by free offers
. Being in the mortgage industry, I have a completely different perspective of advertising. Lenders frequently promote No Points, No Fees, or Free Appraisals. What the unsuspecting consumer doesn’t realize is that if they aren’t paying for it one place, they’re paying for it somewhere else. Appraisers and escrow officers don’t work for free - now matter how nice you are. Does a mortgage professional make money providing a loan? Certainly, just as you are paid at your job. But depending on your short and long term financial plans and property ownership plans, paying for costs up front and/or several points can actually save you tens of thousands of dollars over a low up-front cost loan. Tailoring the right loan for your situation requires insight into your circumstances and objectives.
Choosing the lender offering the best price over the phone or in a newspaper. Does the term ‘bait and switch’ ring a bell? I have had many clients tell me that they were quoted certain rates to get roped in. Further along in the process, rates, terms and costs were raised, usually when it’s too late to back out. It’s true that the market is constantly fluctuating, and you can’t hold a broker or lender to a price quote that isn’t locked. A lock is the lender’s agreement guaranteeing the rate. However, many ads and solicitations fail to disclose ALL of the important information/costs and are simply a marketing ploy to get their phones to ring. A mortgage broker or lender that operates with integrity will come with glowing recommendations from people you know.
Making verbal agreements. Don’t sign documents containing instructions contrary to your verbal agreements. For example, if the seller verbally agrees to include the refrigerator in the sale, make sure it gets put into a written contract. A written contract will override a verbal agreement. State law requires that contracts for the sale of real property be in writing. Verbal agreements are not enforceable.
Buying a home without professional inspections. It's highly recommended that you get property, roof and termite inspections. This way you'll know what you are buying. Your Realtor can help you with arranging property inspections.
Not consulting your mortgage advisor before making financial changes. These are examples of changes which may have a significant impact on loan qualifying:
- changing jobs
- buying, leasing or co-signing for someone else for a vehicle etc.
- co-signing on any loan or credit line
- making large purchases
- depleting cash reserves
- opening or closing credit accounts
- allowing anyone to run your credit
- changing banks or moving money around