The final four errors home buyers make
Julie Garton-Good, GRI, DREI

In two previous articles at this site, we've covered the first six innocent errors home buyers make. Protect yourself from misfortune in the home buying process with this information to help you avoid pitfalls in the home buying process.

Mistake #7: Sharpen your pencil for negotiations

  • Know what you want to win and what you're willing to give up. Even though you may think you can win it all when negotiating with the seller, that's not reality. Prioritize what you want to win and go after it. But also keep in mind what you're willing to give up. Those concessions can help make your home buying dream a reality.
  • Always have more than one item to negotiate.The cardinal sin of negotiating is to have only one item left to negotiate---somebody wins and somebody loses. So make sure that it's a win/win proposition by keeping two negotiating items on the table at all times. That way, one item can be one of your priority items; the other, something you're willing to give up.

Mistake #8: Find the best loan to fit your needs

  • Know what you want to achieve financially.I'm constantly amazed at people who grab the first mortgage that comes their way with a decent interest rate. In fact, many consumers actually spend more time shopping for a new car than they do a thirty-year mortgage. Ask the lender to pencil out the entire cost of the loan, including discount points, origination fees and other closing costs you're considering. Then compare the bottom lines of several loans. That should give you the true cost of borrowing and let you choose the most cost effective loan.
  • Don't forget that you can negotiate with the lender. There are very few items in real estate that aren't negotiable; and the costs charged by the lender to originate the loan are no exception. You could try your hand at negotiating discount points, loan fees--even impounding your taxes and insurance costs. Depending on the type of loan you're seeking, there are very few costs that aren't negotiable.

Mistake #9: Fail to ask the right questions before you pick up your keys at closing

  • Questions to ask the lender.I know, you'll be overjoyed to close the loan and pick up the keys---but don't until you ask the lender several questions. Make sure you understand if you can make prepayments on the loan (and how), how you can remove the private mortgage insurance(PMI) from your loan, if applicable, and also ask what will happen if your mortgage loan is sold. These are questions that may come up later, so it's best to get the answers right now.
  • Ask questions of the title insurer, the home warranty company and the seller. Be sure to ask any questions you have about the title policy, home warranty program (if applicable), and also obtain the necessary warranties and paperwork on appliances from the seller. Even if it takes two hours to close your loan, obtaining answers to your questions is worth it!

Mistake #10: Cost Effectively Manage Your Castle

  • Should you prepay your loan?Potentially, yes; yet many consumers mismanage their money by making prepayments to their mortgage principal before they tackle paying off non-deductible credit card interest.

If you do decide to prepay your loan, make sure you clearly note the prepayments on your payment coupon, make the payments in a separate check (so you can track them later), and ask the lender for an annual printout, showing the proper calculations. Remember, since a large percentage of your monthly payment is interest in the early stages of the loan, prepaying early in the loan makes the biggest financial impact.

  • When does it pay to refinance?As a broad rule of thumb, it may pay to refinance your home loan when you can shave two to three percent points off the interest rate and you'll keep the loan long enough to recover the costs of refinancing. If you're pulling equity out of the property when you do refinance, make sure it's going to a good cause, and not an item that won't outlive your repayment on the loan.

There you have it. Answers to some of the most innocent mistakes home buyers make. Now that you have the answers, you're in great shape to take the home buying plunge. Come on in--the water's fine!

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