If you're like most people, buying
a home is the biggest investment you'll
ever make. Annual mortgage, taxes
and insurance costs can range from
25% to 40% of your gross annual income.
You're on your way to protecting
yourself, and making the home-buying
process easier by becoming an informed
consumer. Read, talk to family, friends
and real estate professionals. You'll
be glad you took the time to understand
- Looking for a home without
Pre-approval and pre-qualification
are two different things. During
the pre-qualification process, a
loan officer asks you a few questions,
then hands you a "pre-qual"
letter. The pre-approval process
is much more thorough.
During the pre-approval process,
the mortgage company does virtually
all the work associated with obtaining
full-approval. Since there is no
property yet identified to purchase,
however, an appraisal and title
search aren't conducted.
When you're pre-approved, you have
much more negotiating clout with
the seller. The seller knows you
can close the transaction because
a lender has carefully reviewed
your income, assets, credit and
other relevant information. In some
cases (multiple offers, for example),
being pre-approved can make the
difference between buying and not
buying a home. Also, you can save
thousands of dollars as a result
of being in a better negotiating
Most good Realtors® will not
show you homes until you are pre-approved.
They don't want to waste your, their,
or the seller's time.
Many mortgage companies will help
you become pre-approved at little
or no cost. They'll usually need
to check your credit and verify
your income and assets.
- Making verbal (oral) agreements!
If an agent tries to make you sign
a written document that is contrary
to their verbal commitments, don't
do it! For example, if the agent
says the washer will come with the
home, but the contract says it will
not--the written contract will override
the verbal contract. In fact, written
contracts almost always override
verbal contracts. When buying or
selling real estate, abide by this
maxim: Get it in writing!
- Choosing a lender because
they have the lowest rate. Not getting
a written good-faith estimate.
While rate is important, you have
to consider the overall cost of
your loan. Pay close attention to
the APR, loan fees, discount and
origination points. Some lenders
include discount and origination
points in their quoted points. Other
lenders may only quote discount
points, when in fact there is an
additional origination point (or
fraction of a point).
This difference in the way points
are sometime quoted is important
to you. One lender will quote all
points, while another lender may
disclose an extra point, or fraction
thereof, at a later time--an unwelcome
Within 3 working days after receipt
of your completed loan application,
your mortgage company is required
to provide you with a written good-faith
estimate (GFE) of closing costs.
You may want to consider requesting
a GFE from a few lenders before
submitting your application. With
a few GFEs to compare, you can get
a feel for which lenders are more
thorough, and you can educate yourself
regarding the costs associated with
your transaction. The GFE with the
highest costs may not indicate that
a particular lender is more expensive
than another--in fact, they may
be more diligent in itemizing all
The cost of the mortgage, however,
shouldn't be your only criteria.
There is no substitute for asking
family and friends for referrals
and for interviewing prospective
mortgage companies. You must also
feel comfortable that the loan officer
you are dealing with is committed
to your best interests and will
deliver what they promise.
- Choosing a lender because
they are recommended by your Realtor®.
Your Realtor is not a financial
expert. He or she may not know which
loan is best for you. Your Realtor®
gets a commission only when your
transaction closes. As a result,
the Realtor® may refer you to
a lender who will close your loan,
but who may not have the best rates
or fees. Also, many Realtors®
refer you to one of their friends
in the loan business--who also may
not have the best rates or fees.
Although most Realtors® are
professional and concerned about
your best interests, you should
do your own homework.
We recommend shopping for a loan
with at least three mortgage companies
before you make a decision. There
are countless stories of consumers
who ended up paying higher rates,
or got a loan that wasn't right
for them, because they blindly followed
their Realtor's® advice.
- Not getting a rate lock
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 other particulars
about the program.
- Using a dual agent (an
agent who represents the buyer and
seller in the same transaction).
Buyers and sellers have opposing
interests. Sellers want to receive
the highest price, buyers want to
pay the lowest price. In most situations,
dual agents cannot be fair to both
buyer and seller. Since the seller
usually pays the commission, the
dual agent may negotiate harder
for the seller than for the buyer.
If you are a buyer, it is usually
better to have your own agent represent
The only time you should consider
using a dual agent, is when you
can get a price break (usually resulting
from the dual agent lowering their
commission). In that case, proceed
cautiously and do your homework!
- Buying a home without
professional inspections. Taking
the seller's word that repairs have
Unless you're buying a new home
with warranties on most equipment,
it is highly recommended that you
get property, roof and termite inspections.
These reports will give you a better
picture of what you're buying. Inspection
reports are great negotiating tools
when it comes to asking the seller
to make repairs. If a professional
home inspector states that certain
repairs need to be made, the seller
is more likely to agree to making
If the seller agrees to make repairs,
have your inspector verify the completed
work prior to close of escrow. Do
not assume that everything will
be done as promised.
- Not shopping for home
insurance until you are ready to
Start shopping for insurance as
soon as you have an accepted offer.
Many buyers wait until the last
minute to get insurance and find
they have no time left to shop around.
- Signing documents without
Do not sign documents in a hurry.
As soon as possible, review the
documents you'll be signing at close
of escrow--including a copy of all
loan documents. This way, you can
review them and get your questions
answered in a timely manner. Do
not expect to read all the documents
during the closing. There is rarely
enough time to do that.
- Making moving plans that
You expect to move out of your current
residence on Friday and into your
new residence over the weekend.
Also on Friday, your lease terminates
and the movers are scheduled to
Friday morning arrives: bags packed,
boxes stacked, children under arm
and the dog on a leash; you're sitting
on your front door stoop awaiting
the arrival of the movers.
Your phone rings. Your loan closing
is delayed until the following Tuesday.
The new tenants turn into your driveway
with a weighted-down U-Haul and
the movers pull up across the street.
You ask yourself, "Where's
the nearest Motel 6 and storage
facility? How much will the movers
charge for an extra trip? Can we
How can you avoid such a disaster?
Cancel your lease and ask the movers
to show up five to seven days after
you anticipate closing your transaction.
Consider the extra expense an insurance
policy. You're buying peace of mind--and
protecting yourself from expensive