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Mortgage Mistakes

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But whether it's their third home or their first, many people make mistakes before and during the mortgage process that can cost them thousands of dollars.

Not checking your credit report

Several months before you apply for a mortgage, get a copy of your credit report and your FICO credit score. The FICO score is a three-digit number that most companies use to decide whether to approve your loan.

Checking your credit report months before you apply for a mortgage will give you plenty of time to challenge inaccuracies, close an inactive account or pay off any overdue bills.

Not getting pre-approved

Some first-time buyers confuse pre-qualification with pre-approval. Pre-qualification is simply an estimate the lender makes about of how much you can borrow based on how much you make, how much debt you have and what kind of cash you have for a down payment. A pre-approval, however, involves applying for the loan before you buy a house. The pre-approval process requires you to submit tax returns, pay stubs and other information while the lender checks your credit.

In a hot real estate market, a pre-approved buyer gets much better attention from home sellers and agents because they have already secured their loan.

Borrowing too much

Lenders frequently allow borrowers to get a loan for more money than they can comfortably pay back. Many people applying for a mortgage expect their income to eventually increase enough to make their payments more manageable in a few years. Instead of overextending your family budget, many experts recommend that your housing costs (including mortgage payments, property taxes and insurance) not exceed 25 percent of your gross income.

Not finding first-time buyer programs

State, county and city governments often sponsor first-time homebuyer programs that can offer better interest rates and terms than private lenders. Some are geared toward people with bad credit or can help buyers with little saved for a down payment.

Not shopping around

Make sure the loan you are being offered matches your credit standing. Some buyers with excellent and good credit end up paying thousands of extra dollars because their loan is aimed at those with bad credit.

Paying junk fees

Some lenders add a variety of extraneous costs to a mortgage. They may charge you $150 for a credit check when it costs them $15. Before you chose a lender, ask about interest rates, points charged to that rate (each point is 1 percent of the total loan amount) and hidden costs they may charge. Factor in these fees when comparing lenders.

Not planning for closing costs

The day you close your loan, you”ll be expected to write a check to pay closing costs, which include attorney”s fees, taxes, title insurance, prepaid homeowners insurance, points and other lender”s fees. Many are unprepared for the total closing costs (from 2 percent to 7 percent of the selling price of the house). Make sure you have the cash on hand to pay these costs.

Being broke after closing

After paying closing costs, many homebuyers have nothing left in the bank to pay for any other expenses or emergencies that may pop up. Some miss their first mortgage payment as a result. To avoid this problem, have three months of expenses in reserve before buying a house.