5 Things to Avoid When Hunting for a Mortgage

Few things frustrate me more than knowing a borrower did not get the best deal on the market. I do everything within my powers to assure a borrower is getting the best rate and terms for his or her specific scenario. But the past few weeks have shed a new light on some of the biggest problems borrowers face when handling a mortgage transaction. Here are the top 5 things you want to avoid when entering a mortgage transaction:

5. Base your decision on what you hear in the media:
Have you heard "rates in the 4's" or "rates as low as X"? I am sure you have. Just because a friend tells you, "I got a rate of 4.375", does not mean he or she didn't pay a high price. The majority of borrowers call looking for a rate with no points. You will never have the lowest rate on the market if you are not paying points. Your friend that got 4.375% may not be telling you that she paid 1.5 points to get the rate. It may be the ideal situation for her, but every scenario is different. A knowledgeable mortgage professional can determine if paying points is a viable option for your scenario.

4. Not having your information ready to submit:
Aside from frustrating your mortgage company, it poses a huge risk to yourself. The longer its takes to gather information increases the likelihood of jeopardizing a rate lock. Many loans are locked for 30 or 45 days. If you take a week or more to get your information back to your mortgage professional, you run the risk the rate lock expiring. In today's mortgage market, you can assume you will need to provide documentation of income (pay stubs, W2, and possibly tax returns), asset information (full statements covering 30 days), and information on your existing mortgage (if applicable) to demonstrate the new loan is in your best interests.

3. Accept terms without knowing your break even point:
Is it worthwhile to refinance from 4.75% down to 4.5%? It depends. A general rule of thumb is that a borrower should break even in under 3 years. Meaning, the borrower should recoup any closing costs within 3 years. The break even point is calculated by dividing the total closing costs by the monthly savings. You now know how many months it will take to break even. (Note: I spoke to a previous borrower of mine who was convinced by his local bank that paying $3,200 to reduce his rate .25%, saving $41/mo was worthwhile. You do the numbers. He admitted to me that it was a stupid move, even more so because he paid upfront, yet another item I will address here)

2. Assume your current lender will give you the best rate:
You may get a phone call from your current mortgage holder offering a "great opportunity" to easily save you money. The offer will not be the best. However, your lender will bank (no pun intended) on the fact that you want to keep the process simple. The lender will tell you, "because you're an existing customer we can give you a deal". The deal is you will pay a higher rate than anywhere else because it is assumed you are too lazy to search for a lower rate elsewhere.

1. Paying application fees:
What are you paying for? Someone to type up a bunch of numbers. A mortgage professional will tell you, "it allows us to start processing the file" or "there are upfront costs to produce the initial documents", but neither is the reason I am against application fees. Most application fees are nonrefundable. Once you pay an application there is less incentive for your mortgage professional to close your loan. The company has already made money. Granted there is more money to be made by closing the loan, but you understand the logic. The mortgage company knows if you pursue a better rate elsewhere then you are willing to give up the $300, $400, or maybe even $500+ you paid for an application fee. Unfortunately, I saw two of my past borrowers fall victim to this cardinal sin, only to realize I gave them a better offer after they had already paid the fee.

You will always make mistakes when it comes to household decisions. Staying informed is critical when it comes to the financials of your household. It's always good to have someone on your side. Feel free to give me a call if you have additional questions regarding mortgage mistakes.

Make it a great day!