With house buying season right around the corner, it’s time to shop for a mortgage. Especially in a hot housing market like Boulder County, getting your mortgage lined up before the perfect house comes along is recommended.
Yet, according to Bradley Tuttle’s Realty Times, most borrowers do little mortgage evaluation and pay more for their loans as a result. To get the best mortgage rate and avoid paying more than you need to, take a look at Realty Times top five mortgage mistakes.
1. Mistaking advertised rates with the actual rate
Advertised rates are typically for those with perfect – or almost perfect – credit. For most mortgages, to get the low rate advertised, you must pay a fee which can be up to or one percent of the loan amount, also called a ‘point.’
When you apply for the loan, the lender will review your credit and set your rate based on your credit standing and other factors. Then, a day or two before you close on the home and loan, the lender will scrutinize your credit again. If your debt-to-income ratio has changed, your mortgage rate may be adjusted.
2. Not comparing lenders
The cost of a mortgage can vary widely, so it's important to shop and compare.
Two of your options are to work with a loan officer or mortgage broker. A loan officer works for a bank or savings and loan and can only offer loans that the bank has put together. By comparison, a mortgage broker prequalifies you, then shops multiple lenders to find the best loan.
You could also choose to do your own shopping. If you do, talk to various sources like a local bank, national bank, credit union and savings and loan. In each case, you will need to share personal financial information.
Realtors also have a wealth of experience with lenders and can often make a recommendation for a reputable mortgage broker or other lending sources.
3. Under-scrutinizing loan terms
Loan terms are difficult to understand, but it pays to take the time to look at the detail closely. There are many additional charges that cause the overall mortgage cost to go up. Additional fees may include the loan origination fee, processing, or underwriting fee. These fees can vary widely from one lender to another.
After you apply for the loan, you will be given a breakdown of these fees. Be aware that the terms are negotiable, so if a fee looks out of line when compared to other mortgage packages, ask if it can be reduced or eliminated.
4. Holding out for a lower rate
Interest rates have been at historical lows for some time. Even though rates have been increasing slightly, don’t let that get in the way of your decision to buy a home. If interest rates drop in the future, you can refinance. But, bear in mind you will pay fees for the new loan, such as loan origination fees, title search fees, and appraisal fees.
5. Selecting a loan type that isn’t right for you
When considering the type of loan for you, there are three important factors: current market conditions, how long you will own the home, and how much you need to borrow.
With interest rates so low, fixed rates have been in favor. Be aware that even though the base cost of the loan doesn’t change over time, the cost of the fixed rate can be higher than a hybrid or adjustable rate loan.
By comparison, adjustable rate mortgages are riskier, even when the rate is capped on the high end. If you are planning to be in the home less than five years, an adjustable rate may be the better option, but be sure to carefully consider all of the pros and cons and talk each option over with your lender.
Finally, remember that time is of the essence. When you have a couple of lenders selected, get a quote the same day. If you wait, rates can change. Once you have that mortgage in hand, you are ready to get serious about shopping for a home!