Mortgage No-No's...
5 Homebuyer Mistakes To Avoid
Whether rates are high or low, whether it's a buyer's or a seller's market,
mortgage borrowers make the same mistakes over and over again.
The lucky ones don't suffer any consequences. Others endure hardships varying
from having to brown-bag it at work because money is so tight, to losing their
house in a foreclosure.
Here are five mortgage no-no's (mistakes for mortgage shoppers to avoid):
●
Shopping for a house before shopping for a mortgage.
When Brian Peart, president of Nexus Financial in Atlanta, meets prospective
mortgage clients for the first time, he doesn't discuss rates and closing costs.
Not at the beginning, anyway. He asks how much they can comfortably pay for a
house each month while still saving some money and paying their other expenses.
After his clients arrive at a realistic monthly payment, Peart can help them
figure out the proper price range when they go house-hunting. The danger with
doing it backward - house-hunting, then shopping for a mortgage - is that
"people find the house of their dreams and find out they can't afford it. And
after that they can never be satisfied," Peart says.
●
Diving into the unknown for the loan.
If you don't know anything about the mortgage lender's or broker's reputation,
how can you feel confident that you're being treated fairly? If you don't shop
around, how can you know that you got a good deal? "They should get referrals
from three people they trust and shop those three, and [then] they will get a
good deal," Peart recommends. "If they know a Realtor who's good, ask that
person; but don't just go with that Realtor's suggestion."
●
Borrowing too much.
The most common mistake that first-time home buyers make is "not having a clear
sense of what their true budget needs are going to be for the maintenance of
their home, their household living, and seeing how much it is going to add up
to," says Judy Lawrence, author of "The Budget Kit, 4th Edition" and a budget
coach who runs the Moneytracker Web site.
As a consequence of not planning their budgets carefully, these people end up
buying houses they can't afford, Lawrence says.
After making the mortgage payment they don't have enough money left to enjoy
themselves, save for retirement and the kids' college, buy appliances and
furniture, and pay for the inevitable repairs, maintenance and upgrades that
homeownership brings.
Lawrence's clients estimate the costs for everything from maintaining the pool
to getting an annual furnace checkup. "By the time you add all that up and
divide that by 12 to see how much you need to save every month, people say, 'My
gosh, we need to make adjustments here,'" Lawrence says.
●
Borrowing too little.
You haven't borrowed enough if you spent your available cash on the down payment
and closing costs, leaving little if any money to pay for things that new
homeowners need, from trash cans to pruning shears.
"Every homeowner needs to have three to four months' of emergency living
expenses set aside," says Susan Hunt, housing counseling manager for Consumer
Credit Counseling Service in Atlanta. "Many people, when they buy, will scrape
together every dime to make a down payment and furnish the house. They have no
reserves to draw on."
Ways to prevent this problem include saving up more before buying a house,
purchasing a cheaper home, or getting a Federal Housing Administration-insured
loan and down-payment assistance from a nonprofit agency.
Borrowing too much and borrowing too little are opposite sides of the same coin:
Buying a house that's too expensive. That error often stems from the mistake of
hunting for a house before shopping for a mortgage.
●
Not asking the right questions.
"The first warning sign that I can see is if you don't understand the type of
mortgage the salesperson is pushing on you," Peart says.
About one-third of borrowers are getting adjustable-rate mortgages. A big chunk
of those consists of interest-only loans.
"If you don't understand the way your mortgage payment can fluctuate and change,
or the index and margin, it's not the type of mortgage for you," Peart says.
"Don't just ask, 'What is my payment right now?'
Ask: 'Does it change? And what can it change to? What is the worst-case
scenario? Because, gosh, man, the rule is that the worst-case scenario always
happens."
Not really. But in the same way that a responsible gun owner treats all firearms
as if they are loaded, a responsible homeowner treats an adjustable-rate
mortgage as if the rate will rise to its maximum someday.
- Holden Lewis, Scripps Howard News Service, Newsday, Friday, October 15,
2004
This page was last updated on
03/28/05.
