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11 Mortgage Mistakes You Must Avoid

05/26/2010
Mortgage mistakes cost borrowers money. Yet time and again, borrowers continue making the same costly mistakes. Whether buying new or refinancing, here are 10 mortgage mistakes you should avoid.

11. Not doing your research. There are many loan programs out there such as FHA home loan and VA home loans that can save you thousands over a conventiona

10. Letting someone else arrange a bi-weekly payment plan when you can typically set this up yourself and save several hundred dollars.

9. Purchasing expensive and oftentimes unnecessary mortgage add-ons like credit insurance and mortgage life insurance.

8. Unknowingly paying fees you shouldn't pay. A Service Release Premium and yield spread are two good examples. Lenders pay loan officers and brokers yield spread when they negotiate higher rates with borrowers. Service Release Premiums are paid to lenders by mortgage servicing companies for servicing mortgages. Although these aren't a borrower's responsibility, unsuspecting borrowers end up paying them.

7. Falsely believing that buying is always better than renting. It isn't and in some situations, it costs much more to buy than to rent. If you plan to live in the same place fewer than five years, or have questionable employment or a shaky marriage, consider renting. And remember, closing costs when buying a home and realtor fees when selling a home can cost you thousands.

6 . Failing to negotiate out a pre-payment penalty. If you want to refinance or sell your home before the loan term is up, you'll pay a hefty penalty for an early payoff when your mortgage includes a pre-payment penalty clause.

5. Not comparing the fees included on your good faith estimate to those that appear on your closing documents. Very often lenders add a lot of costly fees onto closing documents because they know many buyers don't carefully read these documents before signing. When distracted most just sign their name to whatever is put in front of them.

4. Focusing all your attention to the interest rate. The interest rate is just one of many mortgage costs. Finding the lowest mortgage rate save you money if you're charged more points and other fees. When comparing mortgages, always compare the total cost of each.

3. Letting an interest-only or low introductory adjustable rate mortgage trick you into buying more home than you can afford. You could easily end up owing more than your home is worth when paying only the interest each month. You could also be facing foreclosure if you can't afford the higher monthly payments after your mortgage adjusts.

2. Many first time home buyers decide to deal with the first mortgage lender you encounter. A mortgage is a product and it's worth your time to shop around for the lender offering the best deal overall.

1. Not knowing which fees are negotiable. Believe it or not, many mortgage-related fees are negotiable. Remember, many loan officers work on commission and won't negotiate unless asked.

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