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Avoid These Mistakes When Choosing a Lender

May 27, 2008  |  Difficulty: Easy

You have found your dream home. You did your homework and you know that this house is the right fit for you. You received an outstanding offer from the seller and you are ready to buy. Your uncle is a lender and you know that you don’t have to think twice about your mortgage loan. So you feel secured at this point.

But maybe you should think about this a little more.

Even when conducting business with someone that you are familiar with, you should do a price comparison. You should fully investigate if other lenders are willing to give you better interest rates. You will be the person responsible for your mortgage, not your uncle. So, it is best that you search for the best option out there. 

You must know the most common mistakes so that you can avoid them. Try to avoid these mistakes when choosing a lender:
  1. No Research Was Conducted. How can you sign a contract for 5-years without truly knowing if your lender is reputable? This is a risky situation that you do not want to place yourself in. Check consumer reports with the Better Business Bureau and talk to past customers. It is likely that if past customers have no major complaints, you will have a good experience.
  2. You Were Blinded by the Glitz and Glam of Promises and Promotions. You read the sign in big red letters that offer the most amazing rate that you have ever laid eyes on. And you are ready to sign your name on the dotted line. But you need to know all of the rules and stipulations that come along with this rate. Sometimes low rates only last for a short period of time and then “real” rates come into effect. You need to have this interest rate promise in writing and the document needs to fully explain how long you will have this rate. If you don’t have this promise in writing, it can easily change before it is time to close the deal.
  3. You Thought That a Particular Program was The Best. Before entering into a program in order to receive lower rates and fees, you must thoroughly investigate if the program is right for you. Have your lender give you a full explanation of what the program entails.
  4. You Took a Rate Form, but You Really Didn’t Know the Meaning of It. There are fixed rates and adjustable rate mortgages (ARM), and there is a big difference between the two. Do you know the difference? In some cases fixed is the better choice, especially if you plan on living in your home for an extended period of time. If you plan on making adjustments within the next 4-6 years, you may want an ARM, because this gives you more flexibility.
  5. You’ve Waited Too Long to lock in Your Rates. When to lock in your rates is a tricky process. You have to determine when the interest rates are at their lowest, leaving you with the better deal. But waiting too long can be harmful, resulting in a rate that is much higher than you anticipated. When you find a mortgage loan agency that will give you a satisfactory rate, don’t wait too long. Consider locking in your rate when the closing approaches.
  6. You Wait Until After Closing to Resolve Important Issues. Say the inspector has found a major issue that needs to be addressed, or there is a fee in the contract that you didn’t anticipate. You want to address these problems before closing, not after. This will allow you to decide if the home is still worth purchasing, or if your loan is the most beneficial. If you don’t deal with the issues before closing, once you sign those papers, the problem is solely yours and there may be little you can do about it. 
  7. You Didn’t Take Into Account The Total of the Closing Costs. You didn’t realize that closing costs can be about 2%-6% of the entire purchase. The percentages vary from lender to lender. To prevent yourself from being totally in the dark, remember, lenders are supposed to give you what is called a “Good Faith Estimate” of the total closing costs. These estimates don’t include everything, so there is room for the actual cost to be slightly more than the given estimate. 
  8. You Knew Nothing About Prepaid Interest. Lenders charge you prepaid interest from the date you take on the loan, all the way to the end of that month. So it is actually best to close at the end of the month to lower this cost. 
  9. You Didn’t Read the Fine Print. If you do not take the time to give your contract a look over, you can really be taken for a loop. There could be hidden charges and fees throughout the entire document. The total of these charges can be very overwhelming. Have a third party, financial professional look at the document to ensure that there are no hidden fees. You have the right to be fully informed.

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