Common mistakes homebuyers make

Making verbal agreements
Not recieving a good faith estimate
Not Getting a rate lock in writing
Not allowing delays in the transaction
Signing documents without reading them
Buying a home without professional inspection

Common mistakes when refinancing a home

Refinancing with your existing lender
Paying for an appraisal when you think your home value may be too low
Using the Tax Assessors value as the actual value of your home
Not getting a rate lock in writing
Getting a second mortgage before you refinance your first

What to expect

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What is a Mortgage ?

A mortgage is simply a very large loan that a home buyer uses to purchase a home.
There are different parts of a mortgage.The following is one of those instruments:

Mortgage Note – sometimes called a promissory note, it is the document that contains a
promise to repay the loan. It indicates the specific terms and conditions of your loan, and
how it will be repaid.

The actual mortgage is a separate document that you sign at closing. It pledges your home
as security for the loan. In some states, buyers sign a deed of trust rather than a mortgage –
either document serves the same function.

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What is Principal & Interest (P&I) ?

All mortgage payments are divided into two different parts:

Principal
The principal is the amount you return to the lender for the actual dollars that you borrowed. Because the principal is based on the amount of money that you actually borrowed, it remains
fixed for the entire life of the loan, but is reduced proportionally with each payment.
You will never pay back more principal than you borrowed initially.

Interest
The interest that you will be charged can vary however. It will depend on interest rate market conditions, and the type of mortgage that you receive. There are two primary types of interest rates, fixed rates and adjustable rates. A fixed rate is one that is set at the time of purchase. With a fixed interest rate you lock in the interest rate for the entire term of the loan. With an adjustable rate, the interest rate you pay changes as national interest rates move up or down. Although adjustable rates present some risk, they usually offer a lower initial interest rate than a fixed rate.

All interest rates are subject to historic change. For example, available interest rates change with the overall economic changes in the United States. Interest rates have fluctuated since the end of World War II to a record high of 16% in the early 1980’s and a near record low of 6% just 15 years later in the mid 1990’s. Interest rates continue to move up and down in response to various national and international economic factors and events.

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Commom mistakes homebuyers make

If you're like most people, purchasing a home is the biggest investment you'll ever make. If you're considering buying a home, you're likely aware of the complexity of the endeavor. Because of the numerous factors to consider when purchasing a home, it's important to prepare as best you can. Some common home-buying principals and caveats are presented below for your consideration.

By keeping them in mind, you'll help create a successful and more enjoyable experience. These Top Ten lists are by no means exhaustive. Since your home could cost you 25 to 40 percent of your gross income, it's important to conduct research, ask questions and study the process carefully.

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Making verbal agreements.

If you're asked to sign a document containing instructions contrary to your verbal agreements don't!!!

For example, the seller verbally agrees to include the washing machine in the sale, but the written purchase contract excludes it. The written contract will override the verbal contract. More importantly, your state may require that contracts for the sale of real property be in writing. Do not expect oral agreements to be enforceable.

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Not receiving a Good Faith Estimate.

Within three business days after the broker or lender receives your loan application, you must receive a written statement of fees associated with the transaction.

This is both the law and the best way to determine what you'll pay for your loan. Bring the Good Faith Estimate (GFE) with you when you sign loan documents.

You should not be expected to pay fees which are substantially different from those contained in your GFE.

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Not getting a rate lock in writing.

When a mortgage company tells you they have locked your rate, get a written statement detailing the interest rate, the length of the rate lock, and program details.

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Not allowing for delays in the transaction.

In a perfect world, all real estate transactions close on time. In the world we live in, transactions are often delayed a week or more.

Suppose you asked your landlord to terminate your lease the day your purchase transaction was scheduled to close. A day or two before your scheduled closing date, you discover your transaction is delayed a week.

In a perfect world, no one is inconvenienced and your landlord is willing to work with you. More likely, however, your landlord is inconvenienced and angry.

Will you be thrown out? Will you have to find interim housing for a week or more?

The eviction process takes a little time, so the Sheriff won't immediately remove you, but this type of stress-producing episode can avoided.

How???
Terminate your lease one week after your real estate transaction is scheduled to close. That way, if there is a delay in closing your transaction, you have some leeway.

This approach might cost a little more, then again, it might not.

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Signing documents without reading them.

Whenever possible, review in advance the documents you'll be signing. (Even though some specifics of your transaction may not be known early in the transaction,  the documents you'll sign are standard forms and are available for review.) 

It's unlikely that you'll have sufficient time to read all the documents during the closing appointment.

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Buying a home without professional inspections.

Unless you're buying a new home with warranties on most equipment, it's highly recommended that you get property, roof and termite inspections.

This way you'll know what you are buying. Inspection reports are great negotiating tools when asking the seller to make needed repairs. When a professional inspector recommends that certain repairs be done, the seller is more likely to agree to do them.

If the seller agrees to make repairs, have your inspector verify that they are done prior to close of escrow. Do not assume that everything was done as promised.

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Commom Mistakes when Refinancing your home

Refinancing with your existing lender without shopping around...
Your existing lender may not have the best rates and programs. There is a general misconception that it is easier to work with your current lender. In most cases, your current lender  will require the same documentation as other companies. This is because most loans are sold on the secondary market and have to be approved independently. Even if you have made all your mortgage payments on time, your existing lender will still have to verify assets, liabilities, employment, etc. all over again.

Not doing a break-even analysis...
Determine the total cost of the transaction, then calculate how much you will save every month. Divide the total cost by the monthly savings to find the number of months you will have to stay in the property to break even.

Example:
if your transaction costs $2000 and you save $50/month, you break even in 2000/50 = 40 months. In this case you'd refinance if you planned to stay in your home for at least 40 months.

Note:
This is a simplified break-even analysis. If you are refinancing considering switching from an adjustable to a fixed loan, or from a 30-year loan to a 15-year loan, the analysis becomes much more complex.

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Paying for an appraisal when you think your home value may be too low

Have the appraisal company prepare a desk review appraisal (typically at no charge) to provide you with a range of possible values.

Your mortgage company's appraiser may do this for you. Do not waste your money on a full appraisal if you are doubtful about the value of your home.

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Using the county tax-assessor's value as the market value of your home

Mortgage companies do not use the county tax-assessor's value to determine whether they will make the loan. They use a market-value appraisal which may be very different from the assessed value.

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Not getting a rate lock in writing

When a mortgage company tells you they have locked your rate, get a written statement which includes the interest rate, the length of the rate lock and details about the program.

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Getting a second mortgage before you refinance your first mortgage

Many mortgage companies look at the combined loan amounts (i.e., the first loan plus the second) when refinancing the first mortgage.

If you plan on refinancing your first loan, check with your mortgage company to find out if getting a second will cause your refinance transaction to be turned down.

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