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David K #1: Mortgage Shopping Mistakes David K's Financial Findings #1 Mistakes You Don't Want to Make When Shopping for a Mortgage It is said that we have become the "Wal–Mart" nation. Just count the number of advertising circulars in your Sunday Asheville Citizen–Times. While we applaud the doggedness of the intrepid bargain hunter, here are some mistakes that we see people consistently make while in search of the best "deal" on a home loan. Don't over shop when interest rates are rising. Just as it is impossible to time the stock market, it is equally difficult to time interest rates. A little comparison shopping is a good thing – but one can over do it. Recently, we observed someone spend an entire week shopping rates. In that time period, the thirty year fixed increased from 5.75% to 6.125%. Rates change on a daily basis. So, for a true "apples to apples" comparison, get all your rate quotes on the same day. When you find a lender with whom you feel comfortable and a reasonable, lock in. The current market is no market in which to gamble. Don't choose a lender just because they offer you the lowest rate. As we have stated in previous columns, lenders look at loans in three buckets: down payment, ability (read income and debt ratios) and intent or credit. If you allow a lender to profile you and pull your credit, you can get a reasonable estimate of what an interest rate might be for your situation. But for an interest rate that you can take to the closing table a lender needs to examine proof of your assets, your income, and your credit. Choosing a lender who promises you a rate without asking to see basic documentation can lead to some costly surprises midway through the application process '' like a higher rate. Be advised that interest rates do vary by state. When internet shopping, be sure to ask if the interest rate being quoted applies to the state in which you plan to purchase or refinance. Beware of lenders who offer "bargain" closing costs. Closing costs are a one–time expenditure of money incurred in delivering "good and marketable title" to the purchaser of the subject property. There are state laws that prohibit usurious lender fees, so most "reputable" lender closing costs will vary by no more than a few hundred dollars. The goal of the mortgage process is to get you to the closing table on the day specified in your purchase contract and at the rate and costs that were promised on the Good Faith Estimate. If closing costs look too good to be true – they probably are! And, what you don't pay for in closing costs – you will pay for in the rate. The smartest way to cover your closing costs is to ask for a seller contribution in your offer to purchase. That way you can avoid the anxiety of just how expensive closing costs can be. Remember, any origination and points are tax deductible in the calendar year of which you purchase on an owner occupied residence – even if they are paid by the seller! Don't try to save money by using an existing appraisal. We often see buyers who want to use a recent appraisal that was performed for the seller in the belief that they can save money. Lenders are putting more and more emphasis on appraisals these days due to the "housing bubble" theory. Remember, the purpose of the appraisal is to justify the value of the subject property to the lender. This scrutiny inadvertently protects you the buyer. As a buyer, you don't know the quality of the work of the appraisal ordered by the sellers. Most appraisers won't turn over an existing appraisal to a lender without an assignment charge. More importantly, if the underwriter doesn't like the appraisal, he or she has the right to order a second appraisal. In the long run this can be more costly than having your lender order the appraisal in the first place. fwf9dkmortgageshoppingmistakesbb1
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