Accepting the First Offer: Essential Things to Avoid When Looking for a Mortgage

There are a Number of Things to Avoid When Looking for a Mortgage. Not Negotiating a Better Deal Is One of the Most Important. You Need to Understand Your Options.

Things to Avoid When Looking for a Mortgage

Facing monthly mortgage payments you can’t afford is one of the worst places to end up, and the way to prevent this is to know one of the most important things to avoid when looking for a mortgage: misunderstanding and not negotiating away painful repayment terms to get a contract that is reasonable and works for you. Although it’s illegal for bank agents to deliberately deceive you or lie to you about the contents of a contract, they are not obligated to make you aware of the meaning of essential mortgage terms. So the best way to avoid this problem is to read and discuss contracts in detail and be sure you understand what important mortgage terms mean.

One of the simple secrets to protecting yourself is starting your search for pre-approval early, before you start house hunting. Armed with information about your financial situation and under no significant time pressure, you have more opportunities to ask questions and will be more comfortable reading, taking your time to investigate terms you don’t understand, and generally being cautious.

The length of the loan and the type of interest rate, and it’s level, are the fundamental components of a loan that help you find the best deal. So be sure you know exactly what your interest rate will be each month, how it will be determined, what this will mean in terms of the amount you’ll owe on each payment, and the life of the loan in months. If you’re looking at adjustable-rate mortgages, look at estimates for the future and guess what your payments will be to have a concrete estimate if what you will face.

These numbers are especially important if you’re looking at some sort of hybrid loan where payments will change when the interest rate converts to adjustable after a certain period of time. You need to know when that adjustment begins, how often it will happen, and roughly what that will mean for your payments so you can make an informed decision. You should also hang onto this info so you can track it through the life of the loan and be prepared for when payments shift with the adjustable rate.

If you have a hybrid loan that transitions from being fixed-rate to adjustable after a certain period, you should also know what portion of the loan your payments will service before and after this transition. Payments can cover the interest that has accumulated and the principal of the loan. When a loan becomes amortized, your payments start getting divided between interest and the principal, which can be to your benefit or detriment depending on your financial goals. It’s important to know if a loan will amortize when it shifts to an adjustable rate so you can track your progress in repaying the mortgage.

Some loans, especially for less reputable banks, include hidden fees and charge them whenever you make a mistake. Although you shouldn’t have this problem with conventional banks, if you have poor credit or other financial issues that reduce your options, you may end up in a position where you have to deal with unreasonable fees.

Every bank assess a few fees at the signing of the loan to cover regulations and paper work. They shouldn’t be more than two discount points, meaning two percent of the value of the loan. Unless you have bad credit, they probably should be between one and one point five points, but sometimes you can negotiate these higher or lower by shifting other terms of your loan. In general, a bank that tries to charge you a total amount of fees above this boundary is probably trying to abuse your situation so you should either challenge them on it or better, walk away from the lender.

Fees for late payments are standard. If you miss your payment date but make payment within the first fifteen days, you’ll usually be forgiven and told that you made payment within the grace period. This is lucky and you should prepare to pay on time next month. If you miss the 15-day mark but pay before 30 days pass, you’ll be assessed a fee but nothing more. If you make a payment more than 30 days late, you’ll pay a fee and the lender will report it to the credit bureau, so your credit score will take a dip. Some lenders will be flexible if you contact them ahead of time because you know your payment will be late. Some are also required by the government to offer you forbearance or other assistance, as long as you notify them.

It’s important to ensure that your contract says this and to know the fee so you can plan accordingly. Most of the time, the late fee is five percent of the payment due, for example. Verify that this is the case. Also, find out who they may sell your loan to if they don’t maintain ownership, and learn that lender’s policy for late payments and forbearance.

As far as things to avoid when you’re looking for a mortgage, misunderstanding or not knowing the terms of your mortgage is among the most important. These tips and definitions can help you, but the essential step is to read your contract and discuss any proposed mortgage in detail with a representative from the lender to ensure you understand everything.