The 6 Dumbest Mistakes

Mistake #1. Lenders are all alike.

No. Even though each lender generally uses the same set of guidelines (FHA, VA, FNMA, FHLMC), specific lender requirements or underwriting judgments come into play. From a consumer standpoint, it is important that you choose a loan officer who has a good understanding of the basic guidelines and who can present your loan application to lenders who will underwrite a loan on a case by case basis. Your best option is selecting a loan officer who can offer many types of loan programs.

Mistake #2. My own bank will give me a better "deal" on a mortgage than any other lender.

Not necessarily. Banks usually have a subsidiary company that will offer mortgage loans. Therefore, you, as a valued bank customer, will be treated just like anyone else, i.e., you will receive the same interest rate, loan costs and programs that they offer anyone who may walk off the street. More importantly, banks offer a limited number of loan products as compared to a full mortgage broker, that is, government products may not be offered through a bank.

Mistake #3. The best way to find a lender is to call around for the lowest interest rate.

Yes, IF you can get that interest rate guaranteed in writing for as long as you need to close your loan. Good luck! Interest rates change daily, sometimes two and three times a day. By the time you are ready to "lock in" your interest rate, there is no guarantee that specific lender is offering that same rate. (Most lenders will not lock in an interest rate until you have at least made a loan application and some will not lock in an interest rate until the purchase contract is signed by both parties.) However, you must be in a position to take advantage of whatever opportunities exists. A mortgage broker is capable of "shopping the rates" for you when your loan is ready to be submitted.

Mistake #4. A first-time homebuyer must get an FHA loan.

No. There are conventional programs also designed for first-time homebuyers. An experienced loan officer will discuss possible issues with the client, including funds for down payment and closing costs, gift funds, underwriting guidelines, limited use of credit, and housing costs. An FHA loan my be in your best interest, or it may not. Only after evaluating your loan application will your loan officer be in a position to give you options.

Mistake #5. I must get a detailed summary of closing costs in order to decide upon the cheapest lender.

First of all, you must recognize that some closing costs are not controlled by the individual lender. Like you, we are at the mercy of the market when it comes to things like title insurance, recording fees, appraisals, termite inspections, hazard insurance, and real estate taxes. Other closing costs will vary depending on the efficiency and profit requirements of the lender. Costs that fall into this category include original fees, processing fees, and underwriting fees. So how do you compare "apples to apples"? Well, just like with meat plan inspections, the government requires all of these fees to be rolled into a single number using a complex mathematical, and to those without a Ph.D. in Math, magical procedure. The number is called the "APR" or annual percentage rate. The APR is the true cost of credit (interest rate) over the entire term of the loan when EVERYTHING is taken into consideration. Obviously, a loan that sports a lower APR is better than one that quotes a higher APR. By law, the lender must quote the APR - even if they are just talking to you about different loans. In the simplest sense, the APR allows you to look at a 6.5% loan with one discount point and compare it it a 7.0% loan with no points and select the cheapest one - it will be the one with the lowest APR. The APR measures the cost of the loan over the full term of the mortgage. What happens if you move in 3, 5 or 20 years? This dramatically effects the cost of credit. If you know you are going to sell the home before the end of the loan term, you need to know the "effective APR" - the numbers are crunched using the same complex formula but with the real life of the loan taken into consideration. You could get a completely different answer. Most lenders do not have the ability to compute this important number - I do.

Mistake #6. The best loan to get is a fixed rate loan.

That depends. Are you on a fixed income? How long do you plan to stay in the home? Are you a single income family with average income raises? Are you the next Howard Hughes with unlimited income potential? Lenders now offer many programs tailored to meet specific needs and lifestyles of the client. Although you can initially save significant amounts of money (and buy more house) if you choose a variable rate mortgage, if you keep that loan for longer than three to five years, you may pay more in interest than if you had chosen a fixed interest rate. You may even find yourself in a situation wherein you experience difficulty in paying your mortgage. This is why it is important to discuss your loan needs with a loan officer who can offer you a wide choice of loan programs.

Trilogy Mortgage, Inc.
1050 E. Southern Avenue, Ste F7
Tempe, AZ 85282
(602) 517-1100
MB# 18823

First Things First
Glossary of Mortgage Terms
Everything You Ever Wanted to Know About Processing a Loan But Were Afraid to Ask
Roadblocks to a Successful Closing

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