Monday, December 26, 2005

The Do's and Don'ts - Home Mortgage

The Do's and Don'ts - Home Mortgage
Buying a home will probably be the biggest and most important investment of your life. The costs of owning a home (Annual mortgage, taxes and insurance) can vary from 25% to 40% of your gross annual income.
To ensure that home ownership is a pleasant experience and that you won’t end up in an unmanageable situation, you must take steps to protect yourself. This means getting information to act prudently and get the best deals, whether its purchasing a house or negotiating your mortgage. Talk to family, friends and real estate professionals and read any pertinent material. The effort you take will save you money and heartache.
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Do: Get a pre-approval before shopping for a home.
Getting pre-approved means that you have the loan to purchase your house. Your lender has gone through the detailed process of reviewing your income, assets, credit history and other relevant information to see if you fully qualify for the loan. Usually, there is little or no cost to get pre-approved by mortgage companies. The advantages are many when you get the pre-approval first.

Sticking To Your Budget: When you go shopping for a house, you will have a set budget based on the amount you have been approved on your mortgage. This will help you stay within what you can comfortably afford and not stretch your finances too thin.

More Negotiating Power: If the seller knows you have been pre-approved, he or she will be more willing to negotiate with you. They won’t have to worry about the transaction not going through because you did not get the mortgage. Because you are dealing from a position of strength, you can probably lower their asking prices by a few thousand dollars.

No Time Is Wasted: You will not be wasting your time shopping for houses that you won’t be able to get a mortgage on. Besides, most good real estate agents will not show you homes until you are pre-approved. They don't want to waste your, their, or the seller's time.

Don’t: Abide by verbal agreements
Always remember in any dispute, written contracts always carry more weight than verbal agreements. For example, if the realtor mentions that the light fixtures are included with the home but is not put in the contract—the written contract will always override the verbal contract.

Don’t: Blindly going to a lender that is referred to by a realtor.
We earn our commission once the transaction is closed. We can help with recommendations, but you should always shop around yourself. Always do your research before committing yourself to a lender. You should be shopping for a loan with at least three mortgage companies before you make a decision. Getting better terms will translate to thousands of dollar savings over the life of your mortgage. Ask me for advice or questions you may have regarding financing.

Don’t: Automatically go to the lender with the lowest rate and also not getting a written good-faith estimate.
The quoted APR (Annual Percentage Rate) by a prospective lender is not the only consideration to go by. You must ask the lender what fees were included in the calculation of the APR. Fees can be appraisals, Private mortgage insurance and loan processing. The one that quoted the lowest APR might not include all the required fees in processing the loan. If you do sign with that particular lender, you might be paying unforeseen fees or learn that you will be paying extra points. You might not be getting the best rate after all.

To compare rates, you should ask for a written GFE (Good Faith Estimate) of closing costs from several lenders before submitting your application. With a few GFEs to compare, you can learn what fees are incorporated and find out which lender is more forthcoming regarding the costs of your transaction. The lowest APR is not always the best rate but the lenders that are most thorough in disclosing their fees. Usually within 3 business days after receipt of your completed loan application, your mortgage company is required to provide you with a written good-faith estimate (GFE) of closing costs.

There is no substitute for asking friends and family for referrals and for interviewing prospective lenders. You must be comfortable with the loan officer and their institution that you will be dealing with and know they are working in your best interest. The cost of the mortgage is not your only criteria.

Do: If you’re getting a rate lock, get it in writing.
When your mortgage company informs you they have locked your rate, get a written statement specifying the interest rate.

Do: Use professional inspectors when buying a home, never take the seller’s word that repairs have been made.
Inspection reports will protect you from paying out for any unforeseen repairs after you purchased the house. These reports will highlight repairs that might have to be done on the property. Using these reports, you can negotiate for better pricing or have the seller do the repairs. There are property, roof and termite inspections.

After the seller agrees to do the repairs, make sure your inspector verify that the work is completed prior to close of escrow. Never assume that everything will be done as indicated.

If you are buying a new home, you won’t require the service of a professional inspector since you are with warranties on most equipment.

Don’t: Waiting right before the closing to start shopping for home insurance.
The moment your offer is accepted, start shopping for insurance. This will give you time to find the best rates and conditions.

Do: Read the documents before signing them.
As soon as you can, review the documents you’ll be signing at close of escrow, including copies of all loan documents. By doing these, you can highlight certain points and have your questions answered promptly. If you sign the documents in a hurry, you probably won’t get this opportunity.

Don’t: Assume moving plans go like clock work, plan for possible delays.
There is nothing worse than being caught in a bind where you don’t have any contingency plans. These situations will cost you money and grief.

Imagine a scenario; it's Friday afternoon and you are moving from your current residence to your new home over the weekend. Everything is packed and the new people are moving to your old residence the same day. What would you do if you found out that morning the home transaction got delayed because your loan was not processed on time. The deal will close the following Wednesday and not on your moving day. So what would you do???

To avoid this situation, please ensure that all mortgage documents are in place, at your lawyers office well in advance of the closing date.

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