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9 costly mortgage mistakes

Thinking about buying a house? Don't make these errors when you're shopping for a home loan.

By MSN Money Partner Mar 22, 2013 5:46PM

This post comes from Angela Colley at partner site Money Talks News.

 

Money Talks News logoJanuary's home sales jumped 16% over December's totals. That means more people are buying, and the end of the housing slump appears to be in sight. It also means mortgages are back.

 

If you're considering shopping for a home, here are nine mistakes you can make when you apply for a mortgage.

1. Not checking your credit

The first thing lenders will do is check your credit, so it's dumb not to know what's in there before they look at it. Order your credit reports six months to a year before you apply for a mortgage, getting free copies through AnnualCreditReport.com

 

Once you have your credit in hand, make it shine. Dispute any errors with the credit reporting agencies. Settle accounts and, if possible, negotiate removal of negative remarks when you do. Pay down as much debt as you can, and pay your bills on time every month. The higher your credit score, the better chance you have of getting both a good loan and a favorable rate.

 

But don't be tempted by ads from credit repair professionals. They charge a lot and there's nothing they can do that you can't.

Image: House for sale © Ocean, Corbis2. Ignoring your rental history

If you're renting, ignoring your rental history can be a mistake. A friend of mine recently applied for a mortgage through the U.S. Department of Agriculture. She had to get a letter of recommendation from her landlord and a year's worth of bank statements showing she'd paid the rent on time before she could be approved.

 

Make sure you're paying your rent on time every month leading up to your mortgage application.

 

3. Job-hopping

Lenders like to see steady employment and a solid source of income. If you've recently switched career paths or have a habit of switching jobs every few months, they might see your employment history as a sign you won't be able to repay your loan. We're not saying stick with a job you hate forever, but try and hold out until after you secure the loan.

 

4. Shortchanging your down payment

You usually need 20% down to qualify for a conventional mortgage. Make sure you have it in the bank before you start shopping for a loan.

 

5. Not getting preapproved

Would you go to the mall without your wallet? That's what you're doing when you shop for a home without having financing arranged.

 

When you're preapproved, you know how much you qualify for. That makes house shopping a lot easier. Without preapproval, you could end up wasting time looking at houses out of your price range or, worse yet, lose out on a great deal while you scramble to find mortgage money.

 

6. Not shopping around

Mortgage rates and terms vary by lender, even from day to day. Some lenders may have tighter requirements and offer you higher interest rates, while other lenders might think you're a safe bet and offer you lower rates. Don't sign up for a mortgage without shopping around first.

 

7. Ignoring fees

Mortgages can also be loaded with fees, including:

  • Appraisal. The lender will hire a third-party appraiser, but you'll pay the bill.
  • Credit report fee for checking your credit.
  • Loan origination fee.
  • Processing fee to cover the cost of paperwork.
  • Underwriting fee for final analysis and approval.
  • Wire-transfer fee.

And those are just a few examples. Zillow says fees can equal 3% to 5% of your total loan amount. Don't agree to a loan without first getting all fees in writing. If they're too high, negotiate them down or take your business elsewhere.

 

Many mortgage fees are simply add-ons to make extra money for the lender. Challenge them; one good technique is to pit lenders against each other.

 

8. Not locking in

Mortgage rates change often. The rate you're quoted when you're shopping can change, for better or worse, before the loan closes -- unless you lock it in.

 

Most lenders will allow you to lock rates for 30 to 45 days. But be sure you can close on the property within that window. If you can't, continuing the lock could cost extra. So when you're negotiating your loan and fees, consider attempting to negotiate a longer lock as well.

 

9. Taking on more than you can afford

Lenders, like real-estate agents, are in the sales business -- the more you buy and borrow for, the more they make. Don't assume that because you qualify for a $500,000 mortgage it's the best deal for you. Do your own math and make sure you can comfortably afford your payments before you sign up.

 

More on Money Talks News and MSN Money:

4Comments
Mar 25, 2013 1:40PM
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I do not not need a stinking mortgage any more!
May 18, 2013 12:56PM
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I follow the TNX, the yield on the 10-Yr Treasury, which usually has a predictable "swing pattern" that's about .375% wide.  Mortgage rate tend to track the TNX.  If the TNX is near the bottom of the swing pattern, it's best to lock.  But if it's near the top, it might not work out well for you.  I saved one guy $8,000 on the cost of his $417,000 loan by NOT locking too soon.  The shorter the lock, the better the price of the loan.  If rates are falling, it's best to wait until the loan is approved, then lock it for 15 days.  Not everyone times it right, but I''ve been about to time it right about 85% of the time.
May 18, 2013 12:49PM
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If you have very good credit, Conventional loans are available up to 97% loan-to-value with private mortgage insurance, which is usually a lot cheaper than FHA mortgage insurance.  So, a down payment as low as 3% is possible with a Conventional loan. 

 

Spreading this myth that you have to have 20% down is keepiing a lot of people out of the housaing market.  They only need 3.5% down for FHA with as low as a 640 FICO, and the PITIMI payment for a purchase is often lower than rent for a comparable home these days.

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