Rookie Mistakes When Applying for a Mortgage

When it comes time to buy a car, would you walk into the dealership and say, “I don’t know much about buying cars, but I’d like to buy one today”?

There aren’t many people who would buy a car that way. So why is it so different when applying for a mortgage?

Many first-time home buyers will check with a few mortgage lenders when they want to apply for a mortgage and they will say that it is their first time buying a house and they don’t have much experience doing it. This is a red flag and a big mistake that many rookie home buyers make, according to Carolyn Warren, the author of “Mortgage Rip-Offs and Money Savers.” She says first-time home buyers who approach the mortgage lenders with this type of attitude might as well hold a sign on their foreheads that reads, “Please charge me more – I won’t know the difference.”

Recent surveys have shown that nearly half (about 44 percent) of potential home buyers admit that they are neither knowledgeable nor confident about mortgages or the mortgage lending process. Nearly half of the home buyers who participated in the survey only answered about half of the basic mortgage questions that they were asked. In addition to that, about 37 percent of the ones surveyed thought that “pre-qualifying” for a mortgage loan meant that they already had guaranteed financing for the loan. More than half (57 percent) admitted that they did not know how adjustable rate mortgages actually worked.

One of the reasons fewer home buyers know the basics about a mortgage loan is due to new regulations in the mortgage industry. One of these new guidelines, as part of the Real Estate Settlement Procedures Act, requires that lenders give the mortgage borrowers a Good Faith Estimate which includes the terms of the loan, interest rates, settlement costs and other information. Many borrowers will submit all the necessary paperwork and then feel obligated to use the services of that lender because of the time that they spent working with the buyer.

Another reason that home buyers don’t know much about the mortgage industry is simply because they don’t take the time to learn about it. Instead of sitting down and spending time with potential lenders or with a trusted financial advisor, they trust that the lender is going to give them a good deal on a mortgage loan without learning much about what the terms entail. There are also hundreds of books, websites, articles and more about the mortgage industry so you can at least educate yourself on the process before you agree to anything when you buy a home. Talk to friends and relatives who have purchased homes before to find out what to expect and what you can do to protect yourself during the entire process.

Unfortunately, there are shady mortgage lenders that can give other lenders a bad reputation. They grossly overcharge for closing fees, origination fees and much more. If you don’t shop around and educate yourself, you could be a victim of one of these lenders. Take some time to do your homework and read the fine print. Buying a home may be the most important financial decision you will ever make. Make sure it counts.

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