The Ten Biggest Mistakes You Can Make in Buying a Home
While some people can purchase a home now or in a few months with little help, most people are terrified of talking to a real estate agent or mortgage loan officer. This report is for people who want a home, that have good income, and would like to retire debt free and wealthy someday. This report is a compilation of over 30 years of experience in the real estate and real estate finance industries. We have helped many people just like yourself purchase the home of their dreams, reduce their monthly costs, and restructure the way they pay their bills and spend their hard earned dollars.
We believe in educating a client about all of their choices. That means the positive and possible negative aspects of each loan. The reason we are in this business is to help people achieve their dreams of owning a home. We think you should ask as many questions as you want and we encourage you to request all the information we offer as a service to our clients. If you contact a real estate agent or mortgage loan officer who is unwilling to answer your questions, continue to look for the person who will help you.
Did You Know That You Could Buy A $100,000 Home For The Equivalent Of Spending $350 A Month On Rent?
Yes, this is possible. Homeownership has tremendous tax advantages and your home will most likely go up in value. So a home you purchase today for $100,000 and sell for $120,000 in 5 years may cost you as little as $350.00 per month.
You will have the ability to write off the mortgage interest and the property taxes on your annual income tax. Also, because the house increases in value you will earn money simply by being a homeowner. Over the years, we have heard many buyers say their accountant suggested they buy a house. After owning a home for a year or two they realize why. Owning a home provides you with one of the best tax advantages available.
Before we tell you the many ways we can help you buy a home with little or no money down, it has been our experience that many banks, mortgage companies, credit unions, real estate agents, and builders will avoid the topics below.
Our goal is to educate you as much as possible. We originate mortgages by educating the buyer an allowing them to make an educated decision on what loan fits their needs.
The Ten Biggest Mistakes You Can Make in Buying A Home
- Finding the Lowest Interest Rate Is Not Always the Best Deal. Some loans have very attractive interest rates (also known as teaser rates) but you may be hit with higher upfront charges. Points and or origination fees are the most common ways to lower the rate and charge up front costs. When searching for a mortgage, ask the lender if they are charging points or origination fees. Points and origination fees are calculated as a percentage of the loan amount. See example below.
1 Point = 1% of the loan amount $800 paid at closing
2 Points = 2% of the loan amount $1,600 paid at closing
Often the difference in monthly payment from a slightly higher interest rate takes the equivalent of 10 years to equal these upfront costs. Many people will have refinanced or purchased another home before this occurs.
Beware of Adjustable Rate Mortgages (ARMs) and Balloon Mortgages. ARM rates will adjust depending on the loan. The ARM rates may adjust as often as every 6 months but in most case they adjust after 1,2,3, and 5 years. Those rates are far more likely to go up when they adjust. The Balloon Mortgage requires the borrower to pay the loan off when it matures, usually between 2 – 7 years.
There are many lending tactics to sell the borrower on a low rate and then charge outrageous fees and costs. Don’t fall into the “bait and switch” lending ploy.
- Getting a Loan From Your Real Estate Agent or the Mortgage Company in Your Real Estate Agent’s Office May Not Save You Any Money. Many real estate companies and individual real estate agents are now offering mortgage loans as well as real estate services. It has been our experience that some Realtors are not educated enough and do not have the experience to originate mortgage loans. This is known throughout the industry. They spread themselves too thin and it ultimately hurts the borrower. Realtors sell Real Estate and Mortgage Companies originate mortgage loans. Also, using a mortgage company that is affiliated with a real estate company may cost you more. It may be slightly more convenient, but it also can be a lot more expensive. Competition drives interest rates and costs down. In the controlled business arrangement with a Realtor or a Realtor owned Mortgage Company, you lose that competition and you lose lower rates and lower costs.
- Buying a Home from the Listing Agent May Not Be In Your Best Interest. The listing agent is the person who makes an agreement with the seller to sell the home. The seller agrees to pay the listing agent a commission for marketing and selling their home. The listing agent is working for the seller and will consider the sellers needs before the buyers. Having your own agent (selling agent) does not cost you any more money. The seller will pay the same commission for the sale if you do or do not have your own agent. Having your own agent allows there to be someone in your corner. A selling agent can help you find a house, confirm the value, help with inspections and financing, and answer any other questions you may have.
- Buying FHA, VA, or IRS Repossessed Homes May Be A Mistake. I am not against purchasing a repossessed or discounted property. In many markets, especially those that are having financial trouble, a repossessed home may make good sense.
However many VA, FHA, and IRS repossessed homes are sold with virtually no warranty. Also, the borrower may be limited on how much they can inspect the property prior to purchasing it. Often times these houses are in need of repair and need work. Not being able to thoroughly inspect the property puts the purchaser in a risky position.
There are some bargain properties but for the most part investors who have the “know how” purchase them. Loans with zero or little down payment typically will have higher property standards.
Keep in mind that purchasing this type of property requires bidding for it. The people you would be bidding against rehab houses for a living, so you may be at a disadvantage from an experience stand point. In addition, most homes that are for sale under these conditions require a substantial up front deposit that may not be refundable should your loan not close within a specific period of time. Also, once the seller of the home accepts your offer on these properties, the bank who owns the current mortgage generally has to agree to everything as well. This can sometimes be a lengthy process that many homebuyers are not aware of. It is always important to set realistic time expectations for yourself.
- Bad Credit Stays On your Record for 7 Years or More. This is true, but in most cases loans are evaluated on the last 12–24 months. They may totally disregard ANY adverse credit issues prior to that 12-24 month window. Most of the loans with zero or no money down cater to those who need leniency in the area of credit. Also, having not re-established credit doesn’t mean you cannot get a loan. There are other means for a lender to establish credit history.
- Credit Counseling May Harm Your Credit Rating. In certain instances, consumer credit counseling services may be a wise decision. These services can provide education and help with debt problems. The Credit Counseling Company will set a budget for the client based on their income and how much debt there is to pay off.
The problem comes when counseling companies do not meet the client’s monthly obligations with their creditors. As a result, they begin to have late payments on their credit report. In other words, they may not meet the creditor’s minimum monthly payment requirements because the budget calls for a lesser payment.
Overall, credit counseling is an effective tool to reduce debt as long as they meet the client’s due dates and the minimum monthly payment.
- Getting Your Mortgage Loan from the Internet May Cost You. It could be a costly mistake if you get a loan online from a company in different parts of the country. There are different rules and guidelines for different states, cities, and even counties. It can be risky to obtain a mortgage loan from a company across the country if they are not familiar with the rules that govern the area where the property is located.
Typically local companies will be more concerned about their reputation and doing a good job for their customer. We operate from referrals so it is very important that we meet our customer’s expectations. Getting a loan online can also take longer because they will not have service companies (title companies, appraisers and others) to do the job in a timely manner.
Mortgage loans are complex and may not make sense to purchase online. This is especially true if the borrower is looking for maximum service and care.
- Working with a Mortgage Lender Who Only Has One Product To Sell May Not Meet Your Specific Needs. For the fifteen percent (15%) or so of a bank’s customers that are “Private Bank Clients” (big bucks, big money for the bank), the bank may have the best deal for you. If you don’t fall into that category, I would suggest that you get a mortgage lender who has the knowledge and loan programs to meet your needs.
Most lenders only have one source of funds. This type of lender is forced to “fit” the customer into a prefabricated loan program. They only have one or two different ways to handle the many different loan situations that occur.
It is important that you research your lender and try and get everything in writing. Also, it is easy for the wrong lender to take advantage of the borrower because of the borrowers vulnerable position. Most first time homebuyers need to be educated on the process of purchasing a home. We feel an educated borrower has the ability to make their own decision, a decision that is best for them. Often times a lender will make a decision for you based on the loan that will put the most money in their pocket.
- Paying Upfront Costs Before You Know Exactly What Type Of Loan You Are Being Offered. It is common for lenders to collect for the appraisal and credit report before they even look at your request. They do this to keep you loyal to them. Be very careful about what you pay for and when you pay it. Again, get everything from the lender in writing and make sure you are comfortable before you pay them any money.
We do not charge our customers anything during the initial loan process. They will pay for the services of the vendors we use throughout the process.
- Get A Pre-Approval From Your Mortgage Company Before You Start Shopping For A Home. Having a pre-approved loan can be very important. A pre-approval has two major benefits. First, you will have piece of mind before you get serious about buying a home. You will know how much of a house you can afford, what the payments will be, and how much of a down payment is needed. Secondly, having a pre-approval may give the borrower bargaining power when negotiating a price for the home.
For example, if three buyers are looking at the same house, the seller will probably look closer at the buyer who has been pre-approved. Also, getting pre-approved may allow the borrower to get a better price for the property.
Get pre-approved. It could save you a lot of time and money.
You Might Have Some Questions. Here are some of the most common questions asked by first time homebuyers.
How Do I Qualify? The first thing you do is fill out the short loan application. The more information you give us in the beginning, the more accurate our response will be. Without question, the first step is to get pre-qualified.
How Long Does It Take? We can have your qualification completed in 24 hours. In most cases we will know where you stand and what it will take to get you where you want to be. The biggest delay in most cases is usually the applicant: procrastination, laziness, failing to get the necessary documentation together…these are the biggest delays in the process.
How Much Does It Cost? Zero. The pre-qualification is a free service we offer to anyone interested in purchasing or refinancing a home.
What are the Interest Rates? Interest rates change on a daily basis. Our goal is to get you the cheapest mortgage loan possible, a loan that will save you monthly as well as having low costs to close.
Once you become a homeowner, we can help you lower your rate in the future if interest rates drop. In many cases, we are able to get lower rates for those borrowers who can barely qualify. In ALL cases, we will work to get you the absolute best possible program that comfortably fits YOUR needs.
There will never be any upfront fee until you agree to the terms of the loan and you’ll never pay us a dime if we can’t get you a loan. We only get paid if we produce. That’s why we’re on your side. All our charges are shown on the Good Faith Estimate you will receive after we receive your application. Once we have the facts surrounding your situation, we’ll know the costs and so will you. There are never any surprises!!! We guarantee it.