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December 27, 2007

8 Mortgage Mistakes To Avoid

By Vanessa Cohen

You finally decided to own some property because renting feels like you’re throwing money into the air. That’s great! Now all you have to do is head to the bank and apply for a mortgage, right?

Wrong. Before you decide to take on a mortgage, there are some very important measures you need to take beforehand. Too often, girlfriends of mine end up making mortgage mistakes that they’re unable to bounce back from.

That said, here are some mortgage mistakes you want to take note of before signing on the dotted line.

Mortgage mistakes #1
Not making sure you qualify

If you find the perfect home and want to make sure that the seller doesn’t keep the home on the market, why would he or she even bother if you haven’t taken the necessary steps to prove that you can at least close the sale with an approved mortgage loan?

Most sellers will ask for a letter from the lender (bank) to prove that you can afford their property. If you don’t have this letter, there’s a good chance that other bidders will get the home you want.

Mortgage mistakes #2
Not repairing your credit

Before you even bother applying for a mortgage, you need to check out your credit report to make sure that you’ll qualify. And if your credit isn’t good, you need to start making reparations.

The last thing you need is to get everything underway only to discover that you weren’t approved for a mortgage because of a simple mistake in your credit. And while you usually know whether or not your credit’s bad without having to ask for a report, with today’s heavy ID theft, you’d do best to check your credit annually.

Mortgage mistakes #3
Not shopping around

As born shoppers, we know that if we spend just a little extra time nosing around other places, we’ll eventually find what we’re looking for at a price we can live with. Mortgages are no different.

When it comes to your mortgage, even if you have a banking institution that you always deal with, it will still bode well on you to shop around other banks to find out what their offers are. Never assume that you’ll be getting a better deal from your bank simply because you’ve been there for years.

Mortgage mistakes #4
Not planning for closing costs
The cost of a house is expensive, no doubt, but you have to plan for other costs that you probably aren’t even aware of yet. You need to start putting away upwards of 7% of the total cost of your home to pay these off.

Closing costs include title insurance, lawyer’s fees, taxes, homeowner’s insurance, and other lenders’ fees, so be prepared to dish out a little more when it comes time to move into your dream abode.

Mortgage mistakes #5
Not getting a professional inspection

Even if the previous owner swears up and down that he or she had the place inspected and everything is hunky dory, it’s probably best that you hire a professional from your end to perform an inspection (property, roof and termite).

Ask friends and family about inspectors and get the job done well before its time to move in. This will help you with your negotiating price, and when an inspector recommends that something should be done, the seller will be keener on doing it to close the sale. Do ensure that the repairs have been done however; never take the seller at their word.

Only in the case that you’re purchasing a new home complete with warranties on most or all equipment can you afford to bypass this step.

Mortgage mistakes #6
Not getting a lock-in rate in writing
If a mortgage company tells you they can lock in the rate they’re offering you, will you simply shake their hand and take their word for it? Of course not.

Anything that a lender promises you should be marked down in writing. What you want is a detailed document that states the interest rate, the program details and how long the lock-in rate will last.

Mortgage mistakes #7
Signing documents without reading

It goes without saying that you should never sign anything without reading it first, but when it comes to mortgage contracts, it’s understandable that there’s a whole lot of reading involved.

While it may be overwhelming, I strongly recommend that you request copies of all the loan papers that you have to sign a few days in advance so that you can look them over.

Do not expect to read them at the signing; there simply won’t be enough time to do that.

Mortgage mistakes #8
Borrowing more than you need

Taking out the biggest loan possible may sound like a smart thing to do considering there will be many surprise costs involved with buying a home, but doing so may end up leaving you unable to afford the very house you did all this for.

Nowadays, mortgages are incredibly easy to get, and although lenders are more than willing to let your overextend, it’s only because they know that most people would rather die than default on their mortgage payments.

Calculate exactly what you need and stick to it, otherwise you may be turning yourself into a prime candidate for foreclosure.

No mortgage mistakes for you

Buying a home is a very exciting time in a woman’s life, so don’t let it be clouded by negative energy and easily avoidable mistakes.

Do your homework and before you know it, you will be living it up in your new, beautiful digs.

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