1. Looking for a home without being pre-approved
As a potential buyer competing for a property, you’ll have a better chance of getting your offer accepted by being as prepared as possible. Consider this hierarchy of preparedness:
- Neither pre-qualified nor pre-approved
The benefits available at each level can be easily understood when viewed from the seller’s perspective. Imagine you’re a seller in receipt of multiple offers to purchase your property. A complete stranger (buyer) is asking you to take your property off the market for at least the next two to three weeks while they apply for a loan. As the seller, lets consider the type of buyer you’d prefer to deal with.
Neither pre-qualified nor pre-approved This buyer provides no evidence that they can afford to purchase your property. You may wonder how serious they are since they’re not at least pre-qualified.
Pre-qualified This buyer has met with a mortgage lender and discussed their situation. The buyer has informed the lender regarding their income, expenses, assets and liabilities. The lender may also have seen their credit report. The buyer provided you with a letter from the broker stating an opinion of what the buyer can afford.
Pre-approved This buyer has provided a lender written evidence of income, expenses, assets, liabilities and credit. All information has been verified by a lender. As a result, much of the paperwork for this buyer’s loan has been completed. This buyer will probably be able to close quickly. They provide you with a letter (pre-approval certificate) from the lender. You’re as certain as possible that this buyer can close.
As a potential buyer, you can see that being pre-approved will give you the best chance of getting your offer accepted. This is critical in a competitive situation.
2. Choosing a lender just because they have the lowest rate
While the rate is important, consider the total cost of your loan including the APR, loan fees, discount and origination points. When receiving a quote from a lender, insist that the discount points (charged by the lender to reduce the interest rate) be distinguished from origination points (charged for services rendered in originating the loan).
The cost of the mortgage, however, shouldn’t be your only criterion. Have confidence that the company you select is reputable and will deliver the loan with the terms and costs they promised. If in the final hours of the transaction you determine that the lender has suddenly increased their profit margin at your expense, you won’t have time to start again with a different lender. Ask family and friends for referrals. Interview prospective mortgage companies.
3. Not getting a written Good Faith Estimate of closing costs
Within three business days after the lender receives your loan application, you must receive a written statement of fees associated with the transaction. This is both the law and the best way to determine what you’ll pay for your loan. Bring the Good Faith Estimate (GFE) with you when you sign loan documents. You should not be expected to pay fees which are substantially different from those contained in your GFE.
4. Not shopping for home insurance until you are ready to close
Start shopping for insurance as soon as you have an accepted offer. Many buyers wait until the last minute to get insurance and do not have time to shop around.
5. Not allowing for delays in the transaction
In a perfect world, all real estate transactions are close on time. In the world we live in, transactions are often delayed a week or more. Suppose you asked your landlord to terminate your lease the day your purchase transaction was scheduled to close. A day or two before your scheduled closing date, you discover your transaction is delayed a week. In a perfect world, no one is inconvenienced and your landlord is willing to work with you. More likely, however, your landlord is inconvenienced and angry. Will you be thrown out? Will you have to find interim housing for a week or more? The eviction process takes a little time, so the Sheriff won’t immediately remove you, but this type of stress-producing episode can be avoided. How? Terminate your lease one week after your real estate transaction is scheduled to close. That way, if there is a delay in closing your transaction, you have some leeway. This approach might cost a little more, then again, it might not.