Avoid These Mistakes When Selecting a Home Loan
By James L Bell
When my wife and I were ready to purchase our first home, we went through a checklist to make sure we would qualify, and that we could afford our home.
We first pulled our credit reports. We found errors in some of the reports that showed some of our balances were not paid off. Lenders can actually force you to pay a higher interest rate on your mortgage or even worse, you can be denied getting a loan.
Look for accounts that aren’t yours, collection accounts for debts you don’t owe and negative marks (other than bankruptcy) that are older than seven years. The three major credit bureaus are Equifax, Experian and TransUnion.
You can buy your FICO scores for all three credit bureaus at MyFico.com. A package of three credit scores and credit reports can be obtained for a reasonable cost. You should be able to dispute errors with the bureaus and get the discrepancies removed.
The next thing we did was pay off our consumer credit card debt, and all old debt.
We also learned not to open any new accounts while in the process of selecting a home loan. I am referring to credit cards and other big ticket items on credit such as furniture until the mortgage process is completed and you’ve moved into your new home.
Our Real Estate Agent, who was a parent of a 7yr old baseball player that I coached, suggested that we get a NegAM loan to help us keep our monthly mortgage payments down. NegAM stands for Negative Amortization. What would have helped is a Home Mortgage Calculator to allow us to understand what our mortgage choices were.
We didn’t fully understand the implications, but we later found out that our home was loosing value, and we were not paying any of the principle with this NegAM loan. On top of that, our home cost was actually going up each month. My point here is, it is not always wise to mix pleasure with business, because when you deal with friends we tend to let our guard down, when we should be looking for what’s best for our family needs now and in the future.
After about two years, we refinanced our home and purchased a 5 year fixed rate loan. This was an Adjustable Rate Mortgage (ARM) loan after the 5th year.