Here are 10 of the most common mistakes home buyers and owners make, and how to avoid them:
- You choose the wrong mortgage. With the advent of instant financing, home loans are no longer the lifetime obligations they once were. Still, you don't want to be saddled with the wrong one, even for a short period. It's just too expensive to get out of.
Therefore, investigate all your options, then lay your favorites side-by-side and make comparisons. Above all, though, do the math, making sure to compare worst-case scenarios.
- You confuse pre-approved with pre-qualified. These are not interchangeable terms. When you are pre-qualified, the lender is making an educated guess about how much you can borrow based on the information you provide. It is an estimate and nothing more.
When you are pre-approved, the lender has verified everything you have told him and "guaranteed" to lend you a certain amount at current interest rates. Even then, however, final clearance is subject to an appraisal of the property you decide to buy.
You still haven't crossed home plate until you have a commitment letter stating the rate and loan amount at which you have been approved and for how long. Even then, though, you can be called out if a second look at your credit report a day or two before closing reveals you've incurred some extra debt in the interim.
- You have too much credit. Excessive credit is almost as damaging as having bad credit, or even no credit. Credit scoring models tend to focus just as much on the amount of credit you have available as whether you pay your bills on time.
Cancel the credit cards you don't use. And postpone those big-ticket purchases until after closing.
- You lie on your loan application. It may seem like a little white lie, but exaggerating your income on a mortgage application or putting down other falsehoods is a federal offense.
Lenders rarely prosecute liars. But if they find out later that you fibbed, they can call the loan due and payable. What's more likely, however, is that you get approved for a loan or house you really can't afford. Even if your loan officer says it's OK to fudge just a little, don't do it.
Don't ever sign your name to a loan application that's not completely filled out. Loan officers have been known to go behind their clients' backs by stretching the truth to get them approved. But it's the borrower who ends up paying the price.
- You hide if you can't make the payments. The worst thing you can do is ignore phone calls and letters from your lender when you get behind on your payments. Lenders are bending over backwards these days to keep people in their homes, and they have numerous options to avoid foreclosure.
Among other things, they can rewrite the terms so you can start over with a clean slate at a payment you can afford, or they can set you up with a financial counselor who can help you.
But they can't do anything for you unless they can talk to you.
- You skip a home inspection. Failing to make your purchase contingent on a satisfactory examination of the property by an independent home inspector could be a costly mistake.
A good home inspector will go over the place from stem to stern. He or she will be able to tell you whether the roof and/or basement leaks, whether the mechanical systems are in good shape and how long the appliances should last. They can't report on things they can't see, but at least their trained eyes are better than yours.
So don't pass up an inspection just to save $300 to $400.
- You hire just any agent to sell your house. All real estate agents are not cut from the same cloth. You want to look for those who specialize in your neighborhood and are top producers. If Aunt Bessie or Nephew Nick don't fit that description, look elsewhere.
Ask your candidates how they plan to market your house, what you can do to make the place more attractive to prospects and how much you should ask for it. If you don't like any of the answers, keep searching until you find one you are certain will do a good job on your behalf.
Beware of those who suggest you should be able to obtain top dollar or more. Unless yours is an extra-special house, they may be saying that just to get the listing. If this is the case, you will be brought back down to earth in a few weeks when they tell you the place isn't selling because it is priced too high.
- You fail to check out a remodeler. Never hire a contractor who knocks on your door or says his prices are good for only a few days.
Whether they are specialty tradesmen who do only one thing like siding or roofing or remodelers who handle large projects like additions or total makeovers, reputable contractors don't solicit door-to-door, and they don't cut prices just because they happen to be in the neighborhood.
Check out a potential contractor by calling several past clients, your local Better Business Bureau or consumer affairs agency, and the contractor's bankers and suppliers. It's also a good idea to take a look at his work. What is acceptable to someone else may not be acceptable to you.
- You pay too much up front. If a contractor asks for more than a third of the contract as a down payment, chances are something's wrong.
At worst, he's a scam artist who has no intention of returning after he cashes your check. At best, he's undercapitalized and can't afford to buy materials without your funds. Or, in between, he could be using your money to pay workers on another job.
And one more thing: Never give a contractor cash.
- You burn your mortgage. Many people celebrate making their last house payment by holding a mortgage burning party. That's OK, but don't torch the original document. Make a copy and burn that instead. Keep all your loan papers in a safe place.
Lew Sichelman, United Feature Syndicate