Top Mistakes Made When Choosing a Lender

You're going to buy a house. You've shopped carefully, and asked all the right questions. You finally have found a place and you're putting in an offer. Now, all you have to do is head over to your cousin Harry's office and get a mortgage.

Well, maybe.

While it can be reassuring to deal with someone that you know, you should always make sure that you're carefully comparison shopping also applies to your mortgage. Why? Your mortgage is going to make a lot of money for a lender! And it's going to cost you a lot of interest. You'll want to get the right one.

Here are nine mistakes to avoid when finding a mortgage lender for you:
You didn't research your mortgage lender.

One of the most important and largest financial transactions is your mortgage. You need to be sure that your mortgage lender is reputable. If your cousin Harry fits the bill, that's great. However, for most of us, it means that we need to check up on the lender. Are their customers happy? Are there complaints about their handling of mortgages? This is critical to your happy relationship with the people you will be paying for a long time.


You got suckered by promises of low rates.

A low rate is good. But you need to understand whether this low rate is guaranteed for you, and for how long, especially if you are in the pre-approval process. This will factor into your house hunting process. After all, if a rate is only guaranteed for 1 week, it's not likely that you'll have the house you want to buy in that short a time. If a company does promise you a time period over which they will hold that interest rate, get it in writing! If you don't have it in writing, they may still try to switch interest rates at closing. A good lender will allow you lots of time in closing and will hold the rate for you.


You assumed a certain program would be right for you.

You will see several programs that offer special low-interest rates. Keep in mind that they may not be the best programs for you. Make your lender explain what programs they feel best serve your needs and more importantly, why.


You didn't bother to compare fixed versus ARM mortgages and just took a fixed rate.

Conventional thinking is that fixed is always better. However, you need to look at your situation. The key question is, "How long am I going to live at this property?" The average length a first time homebuyer keeps their mortgage is less than four years. An ARM can actually be a better choice if you are going to be in the home for a shorter time. Think fixed if you plan on being in your home much longer.


You tried to guess the mortgage market.

Timing the market is hard. That's why there is so much advice about investing; everyone is trying to make a good decision under uncertain conditions. The same thing applies to mortgage rates. Many people will choose to let their rate float, trying to guess when rates have hit bottom. Then they try to lock in. Unfortunately, a lot of times they will wait too long and end up with a much higher interest rate when they are ready to buy. While there is nothing wrong with floating, you do need to keep a close eye what's happening. As closing nears, it might be worth locking in.


You didn't negotiate problems before you closed on the home.

It happens all the time; something crops up before you've closed the deal. It could be that your inspection turned up a problem. It might be that your builder hasn't included a feature that you paid for. Now's the time to tackle the issue. Discussing a solution prior to closing will give both parties time to analyze and determine options.


You forgot to budget for closing costs.

Ouch. Closing costs can be between 2 to 6 % of your purchase, depending on your lender's fees and other factors. Lenders must provide you with a "Good Faith Estimate" of closing costs. This should give you a reasonable idea so that you know what to expect at closing. However, don't be surprised if your lender doesn't know all the costs that will impact you in your situation. Always allow for a little more than your Good Faith Estimate.


You closed early in the month.

Oddly enough, this can make a difference. Why? Upon closing, your lender will charge you prepaid interest for the date the loan is recorded through to the end of that month. Therefore, one way to lower your closing costs is to close in the latter part of the month. This will lower the amount of prepaid interest that you must pay.


You forgot to read the fine print and check for hidden fees.

Another ouch. Does your mortgage contract talk about fees that were not explained to you? Sometimes, hidden fees can mean hundreds of dollars in closing costs. Remember that this is your money at stake. Never should you be afraid to ask for explanations of fees you are being charged.

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