4. Ignoring mortgage fees
While you’re investigating rates, don’t forget the fees. Many mortgages come packed with fees of all kinds. Some — such as your county recording fee — are likely fixed, but others are negotiable.
Before your closing, you should be provided with a good-faith estimate of the fees. Ask your lender to review what they are for and then see if you can negotiate a lower price. These are a few of the fees likely to have the most wiggle room:
- Loan origination fee
- Application fee
- Broker fee
- Underwriting fee
5. Saving too little for a down payment
Not having a down payment stashed away can sink your prospects for getting a mortgage. After being bitten by the housing market crash, traditional lenders now shy away from giving mortgages to those bringing nothing to the table.
You generally need to have a down payment of between 5 and 20 percent to qualify for a conventional loan. And if you put down less than 20 percent, be prepared to pay for mortgage insurance.
6. Not understanding your mortgage terms
Underwater mortgages weren’t the only problem homeowners faced during the Great Recession. An untold number of people also lost their houses simply because they signed on the dotted line without understanding what the heck their mortgage entailed.
For example, people thought they had hit the jackpot with adjustable-rate mortgages, known as ARMs. Homeowners were fine for the first few years while their mortgage rate was fixed and low. But when it reset to the current market rate, that affordable monthly payment suddenly wasn’t so affordable.
The moral of the story is to always understand what you’re signing up for. It’s not enough to know what your monthly payment is today.
If you’re not comfortable with the loan terms or don’t understand them, it’s better to walk away than to make an expensive and potentially life-altering mistake.
What’s your experience with borrowing to buy a home? Share with us in comments below or on our Facebook page.