Homeowners make a variety of costly mistakes when it comes to mortgages. Here is all you need to know to avoid these mistakes. Any homeowner regardless of their credit, needs to avoid making financial mistakes when it comes to their mortgage. If you are in the process of taking out a mortgage you need to research lenders and do your homework to avoid common mistakes. Here is a checklist to help you avoid costly mistakes when taking out a mortgage. Does The Mortgage Have a Prepayment Penalty? This is one of the first things you should look for when evaluating mortgage offers. Prepayment penalties are a fee you will have to pay if you refinance or sell your home. This expense can be as high as six months worth of interest on 85 percent of the original loan value. This expense defeats the purpose of refinancing; any potential savings from refinancing will be lost to the penalty. This is especially undesirable if you had to take out a mortgage with a high interest rate or unfavorable terms due to your credit. After six months to a year of a bad credit mortgage you will want to refinance to a traditional mortgage with better rates and conditions; avoiding a prepayment penalty will save you money. What is the Exact Interest Rate? Getting the lender to commit to an interest rate can be harder than it sounds. Make sure you get the exact interest rate in writing. Make sure it is not a Discount Rate or an Introductory Offer. Make sure the lender or broker will lock this mortgage rate and give you enough time to close on the loan. Negotiate with your lender for a lower interest rate; you might offer to prepay points in exchange for a better rate or more favorable terms. Is Your Lender Pushy? Do not be a victim of pressure sales tactics. If you feel your lender or broker is being pushy, look elsewhere. Mortgage lenders that practice pressure sales are more likely to practice predatory lending practices as well. To avoid being taken advantage of you should look for your mortgage somewhere else. Know Your Budget Before You Shop Many homeowners rush their financing to avoid losing their dream home. The are happy enough just being approved that they take a mortgage with unfavorable terms and rates. You can avoid falling into this trap by doing your homework first and having a budget. Do not plan on having lower payments in 2-3 years; you need to budget for today, especially if your financing falls through 2 or 3 years down the road. |
