Mistakes To Avoid During Mortgage Process

ByAlex Carlucci

This BLOG On 7 Home Buyer Mistakes To Avoid During Mortgage Process Was UPDATED And PUBLISHED On February 24th, 2020

Buyers who have decided to purchase a home need to realize that the home buying process involves multiple steps and is a true process.

  • The home buying process takes time and can be costly
  • Homebuyers will not only have to come up with the down payment but they need to show that the down payment and closing costs are sourced
  • There are closing costs that are associated with every real estate purchase and refinance transactions

Examples of closing costs are the following:

  • one year’s homeowners’ insurance premium
  • title charges
  • recording fees
  • appraisal fees
  • home inspection fees
  • pre-paid such as escrows
  • origination fees
  • discount points
  • attorneys costs

In this article, we will discuss and cover 7 Home Buyer Mistakes To Avoid During Mortgage Process.

Costs Prior To Home Closing

Although most closing costs can be paid at closing, there are costs that home buyers need to come up with prior to closing:

  • Any additional fees and costs can be put a drain prior to them getting the keys to the home
  • Once a home buyer decides to put an offer on a house and the offer is accepted by the home seller
  • Earnest money deposit will be required
  • Earnest money deposit varies where it can be as low as five hundred dollars or as much as $10,000 or more
  • Besides the earnest money required, there are fees and costs that home buyers need to come upfront before closing

Appraisal fees and home inspection fees will definitely need to be paid for prior to closing.

7 Home Buyer Mistakes To Avoid During Underwriting Process

The home buying process can often be very confusing for first time home buyers.

  • The mortgage process today is totally different than the mortgage process of a few years ago
  • Even mortgage professionals who have been in the mortgage industry for decades had to relearn the whole mortgage industry after the 2008 Mortgage and Real Estate Meltdown

The whole mortgage industry went through an overhaul and the SAFE ACT was created and launched in 2010.

7 Home Buyer Mistakes By First-Time Home Buyers

The top of the 7 Home Buyer Mistakes is rushing in making an offer on your home purchase.

  • This financial mistake is very common with first time home buyers where if they do not think things through, they may end up buying more house than they can afford
  • Just because a loan officer will qualify for a certain loan amount, that does not mean buyers can afford the home
  • The loan officer does not know what borrowers spending habits are
  • Lenders do not take into account utilities, private schooling, insurance, child care expenses, and other expenses when qualifying borrowers for a home loan
  • Homeowners in the Midwest or areas where there are harsh winters, gas bills may be triple during the cold winter months than if they were to live in the sunbelt
  • Homebuyers who purchase older homes may need repairs that they are not aware of
  • One of the most common 7 home buyer mistakes is when a home buyer purchases too much home

Buying too much house can stress homeowners with just keeping up with paying their monthly bills.

Choosing Risky Mortgage Loan Programs

Another 7 home buyer mistakes homebuyers make is not knowing the loan product they choose.

  • Loan officers should explore the various loan programs available to home buyers and recommend what is best for the borrower
  • For example, an Adjustable Mortgage Rate or ARM is a great loan product
  • Mortgage rates are substantially lower than fixed rate mortgages
  • Monthly payments are lower as well
  • However, is the adjustable-rate mortgages the best fit for borrowers?

If borrower does not think things through and chooses a loan product that is not the best choice for them, it can be costly for them in the future.

ARMS Versus Fixed Rate Mortgages

ARMs are great because it offers the borrower lower monthly payments than fixed-rate mortgages due to the lower interest rates:

  • However, borrowers are not fully explained that mortgage payments on ARMs can substantially increase in the future
  • This is because adjustable-rate mortgages are only fixed for a certain period and once the adjustment period is over
  • It can increase due to the mortgage rates getting adjusted to a higher rate

Other mistakes homebuyers make is by choosing a shorter-term mortgage program like a 15 year fixed rate mortgages versus 30 year mortgages.

Reserves For Homeowners

Every homeowner’s dream is to pay off their home loans early.

  • However, after they purchase their home and run into unexpected expenses
  • Or a sudden change in their income
  • The shorter-term loans becomes a drain
  • Think twice before choose a 15 year fixed versus a 30-year fixed-rate mortgage

It will cost them thousands of dollars to get their 15 year home loan refinanced to a 30-year fixed-rate mortgage.

Qualifying Versus Affording A Home Loan

There is a big difference between qualifying for a loan and affording the monthly payments.

  • Lenders will not take into consideration monthly debts that do not report  credit report

The following monthly debts are not taken into consideration by mortgage underwriters:

  • heating
  • electric
  • cable
  • cell phone
  • water
  • auto
  • medical insurance expenses
  • scavenger service
  • elderly care
  • child care, school activities
  • private lessons
  • personal expenses

Lenders qualify borrowers by taking monthly debts that report on credit report and income information from paycheck stubs, W2s, and tax returns. There are cases where a  loan officer will qualify borrowers for much more home than they can actually afford.

How Much Can I Afford Versus How Much Can I Qualify

When getting qualified for a maximum loan amount, take a few days and go over it and go over monthly budget:

  • Go over every line item of monthly expense
  • Take into consideration that homeowners will have more expenses than renters
  • 7 home buyer mistakes include when a home buyer compares what their rent payment is versus their mortgage payment as a home buyer

A new home buyer needs to take into account that they now have to pay their own maintenance and utility such as the following:

  • water bills
  • scavenger services
  • home maintenance
  • landscaping services
  • other expenses they were not liable for as a renter

Splurging on a large expensive home gives instant gratification. However, living paycheck to paycheck in order to meet monthly housing expenses can become one of the biggest regrets a home buyer often faces in buying too much house.

Home Inspection

Another 7 home buyer mistakes are home buyers not getting a home inspection done.

  • Home inspections are not required by lenders
  • Home inspections is highly recommended for all home buyers
  • This holds true unless the home buyer is a general contractor or is familiar with the mechanics of home construction and/or repairs
  • There are many cases where home buyers want to save the $200 or so dollars in a home inspection fee
  • They end up regretting not having a home inspection prior to closing on their homes

There are costly potential defects on a home such as the following:

  • electrical
  • plumbing
  • HVAC
  • roofing
  • foundation issues that are only an experienced home inspector can discover

A home inspection is like an insurance policy. It will limit the potential defects home purchase may have. A good way of avoiding the need for potential high ticket repairs homeowners may encounter after their home closing.

Shopping For Lenders

Choosing The Right Lenderis one of the most important decisions buyers will make in the home buying process.

  • Not all lenders are created equal
  • Just because a lender is a HUD-approved lender does not mean that all lenders have the same requirements to qualify for FHA Loans
  • Most lenders will have lender overlays
  • Overlays are additional guidelines imposed by lenders that are above and beyond the minimum lending requirements
  • For example, under HUD 4000.1 FHA Handbook, HUD only requires a 580 credit score for buyers to qualify for a 3.5% down payment home purchase loan
  • Also, HUD does not require borrowers to pay off any outstanding collection and charge off accounts with balances
  • However, most lenders will require buyers to have higher credit scores such as a 640 FICO minimum
  • They also require borrowers to pay off the outstanding collection and charge off accounts
  • This is called overlays on credit scores and collection accounts
  • Another common overlay that most lenders will have are Lender Overlays On DTI 
  • HUD allowed up to a 56.9% debt to income ratio for borrowers with a 620 FICO credit score or higher
  • However, most Lenders will cap the borrower’s debt to income ratios to a 45% DTI to 50% DTI
  • This is often an issue even with borrowers with higher credit scores
  • Evaluate credit and financial profile

Start calling around to various lenders who fit your credit, DTI, and financial profile.

Visit The Property And Canvass The Neighborhood Before Submitting An Offer

Among the top 7 home buyer mistakes home buyers make is not visiting the property several times before making an offer.

  • The house may be the perfect dream home but how about the neighborhood?
  • Visit and canvass the neighborhood in the evenings, weekends, and day time
  • Buyers do not want to move in a drug infested area
  • Or may not like the fact that the neighborhood is full of little kids playing soccer on the street
  • On the flip side, buyers may like the neighborhood even more by seeing kids play with other kids
  • A home purchase is not like an auto purchase where consumers can trade their vehicle in every now and then for a new vehicle
  • A home is where owners will be planning on staying for quite some time
  • They will be raising and growing their family
  • A home is where memories are made and is most people’s largest investment
  • Buyers should not rush into a real estate purchase contract without visiting the home they intend in buying
  • Visit the home and neighborhood several times
  • Check out the neighbors
  • Are the neighbors rowdy?
  • Are kids being noisy?
  • Are their teenagers with loud music?

Checking out the neighborhood when most families are home is a good way to see if the neighborhood is a good fit for their family.

7 Home Buyer Mistakes Not Researching Location Of Property

Be open-minded when searching for your ideal dream home.

  • Many home buyers are just dead set in a particular neighborhood or particular area or town
  • Most parents are sold on the fact that they want to remain in a particular school district
  • They realize they cannot be talked into transferring their children to a different school district
  • Some home buyers do not like to commute a far distance to their jobs
  • So being close to their workplace is very important

To others, being close to the expressway is very important.

7 Home Buyer Mistakes Is Not Searching Outside Preferred Area

Buyers who are set in a particular neighborhood or city, still search for homes outside the area:

  • Do a comparison of apples to apples
  • Weigh the pros and cons
  • Maybe an extra fifteen-minute commute can be more buying power on the home purchase
  • Maybe children may be better off in moving school districts
  • This may hold true because the new school district may offer more programs that are beneficial and tailored to your children
  • Maybe moving further away from first desired location may mean huge savings on property taxes and homeowners insurance
  • A home purchase is one of the most emotional times of anyone’s life

But home buyers also need to think of it as a major business decision as well and try to set certain emotions aside.

7 Home Buyer Mistakes Is Buying Home Without Real Estate Agent

Why use a broker? Brokers make commissions right?

  • Yes, brokers make a commission
  • However, real estate agents are professionals who need to be licensed
  • Realtors get paid for getting the job done
  • At the end of the day, once a deal closes, they do get a commission
  • Most real estate agents are not motivated by the commission they get but do have their client’s best interest at heart
  • Realtors will offer advice to any questions clients may have
  • If they do not have answers to questions, they will contact professionals who can answer your questions
  • I have the most respect for realtors
  • I contact realtors and they contact me
  • Many realtors will go out of their way to get answers for their clients
  • Having a realtor who buyers trust and get along with is sometimes better than having an attorney
  • Homebuyers do not have to pay a realtor’s commission
  • Sellers pay the commission on real estate listings
  • Homebuyers realtor gets paid by the managing broker of the listed property

If you are a home buyer and need a list of Preferred Realtors Partnersplease contact us at gcho@gustancho.com or call us at 800-900-8569. For faster response, please text us at 800-900-8569. Or email us at gcho@gustancho.com.

This BLOG On 7 Home Buyer Mistakes Was UPDATED On February 24th, 2020

Similar Posts