Your home is probably the biggest investment you will ever make. That’s why it’s crucial that you look carefully at any financing surrounding that purchase – or even after you’ve bought your house.
Whether you’re refinancing your current loan, searching for a new one or venturing into home equity territory, it’s smart to consider the following 10 mistakes – and avoid them – before you start signing all those documents. After all, there’s just no substitute for taking the time to educate yourself before you buy something that will likely cost between 25 percent and 40 percent of your monthly gross income.
1. Not setting a budget.
Buy a home that’s out of your price range and you could seriously compromise your ability to fund other important items such as retirement savings and your kids’ education – not to mention an entertainment budget and furnishings for the new house.
Your lender will tell you how much you can potentially borrow – and that can be a staggering number – but it’s not license to spend at will. Experts say your total monthly debts, including your mortgage, should not exceed 36 percent of your income before taxes. You are in the best position to assess your situation. Take the time to make sure you are not overextending yourself.
2. Picking the wrong mortgage.
Because interest rates are still so low, many homebuyers are rushing to secure a mortgage without fully exploring their options. However, you still would be wise to choose your financing package carefully.
Choices include adjustable-rate mortgages, or ARMs, traditional fixed-rate mortgages and others. First-time homebuyers may qualify for special programs, like those offered through Fannie Mae (800/732-6643), which offer lower downpayments and easier qualification limits than standard loans.
3. Buying the most expensive home on the block.
Instead, you should buy a less-expensive home in the best neighborhood you can afford at the time. Otherwise, your neighbors’ lower home values will certainly affect yours. As a general rule, avoid those homes that cost 50 percent more than neighboring houses.
4. Making verbal agreements.
It seems obvious, but buying a house is a very complex process. Make sure you get everything is in writing.
5. Picking a lender just because they have the lowest rate.
Interest rates are important, sure, but you have to look at the overall cost of your loan. And that includes loan fees, discount and origination points. The company that has the absolute lowest quoted rate may not be the best company for your mortgage business, so it pays to shop around.
6. Refinancing without shopping around.
There are a lot of options when it comes to refinancing your home, and your current lender might not have the best rates, fees and programs. Just as you shopped around for your house, make sure you do the same if you’re considering refinancing.
7. Using the county tax-assessors' value as the market value of your house.
“Assessed” value can be much different than “appraised” value. Mortgage companies do not use the county tax-assessors’ value to decide whether they will make the loan; they typically use the market-value appraisal to help make that determination.
8. Signing your loan documents without reviewing them.
No matter how ready you are to crack open that celebratory bottle of vintage wine or champagne, don’t sign documents in a hurry. Review the final closing statement (the HUD-1-Settlement costs statement) with your Realtor and loan officer before you need to sign it. There’s not enough time at the closing to review everything, so do it early and go in prepared. And don’t forget the corkscrew!
9. Not providing documents to your mortgage company in a timely manner.
If your mortgage company asks for additional paperwork, make getting it to them a priority. It could mean the difference between a great interest rate and a higher one that will have you paying much more per month for your new house. It could also delay your pre-approval/approval process, which will then push back when you can comfortably start looking for homes.
10. Not getting a rate lock in writing.
When your lender notifies you to say that they have locked your rate, ask for it in writing. Have them fax or mail something to your office or home that details your interest rate, the length of the rate lock and all the pertinent details about your loan. It will give you much-needed peace of mind. This way, you’ll know for sure that you’ve got the rate you want.
Buying a house can be stressful, especially in the financial sense, but it doesn’t have to be. Keep a clear head, use common sense, and you’ll be patting yourself on the back for making such a smart financial decision.
For more information, visit TexasRealEstate.com. For professional services, contact RE/MAX Genesis at 830-833-2000 or email@example.com.