Top 45 Mistakes when Seeking a Loan

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1.Not investigating all your options:

This is probably the biggest mistake in all domains, not only in finance. Many people use credit unions for loans, while others find good deals from their local banks. The key is to investigate all potential lending options, and by by this I mean ALL. I remember I used to read about every information related to this, including internet reviews for a whole year before taking the decision! Several sites, such as LendingTree.com, E-Loan.com and of course Amortization-Tools.com will help you make financing comparisons and calculate the best loan you can afford.

2.Not using an mortgage loan calculator:

Not using an mortgage loan calculator with amortization schedule table to see exactly how you stand and what you can afford could be again one of the biggest mistakes you ever did, and believe me, I'm not saying that just because I own this website.

3.Making verbal agreements:

If you're asked to sign a document containing instructions contrary to your verbal agreements, don't! The written contract will override the verbal contract.

4.Signing documents without reading them:

Whenever possible, review in advance the documents you'll be signing. (Even though some specifics of your transaction may not be known early in the transaction, the documents you'll sign are standard forms and are available for review.) It's unlikely that you'll have sufficient time to read all the documents during the closing appointment.

5.Failing to negotiate the loan:

Be careful not to fail the negotiation of the prepayment penalty or a proper interest rate lock. Never believe the lenders when they say that there are some standards and you can not negotiate. Remember, always try to negotiate! You will give them a lot of money, so they will be happy to negotiate if they see you are about to go to another company.

6.Not determining what you can comfortably afford:

Unlike a home mortgage, in which people look long and hard at what they will be able to pay over the next 10 to 30 years, car buyers do not always take such payments into careful consideration. "It is only for three years" is a familiar excuse for not evaluating the impact of such payments on your budget. Before taking any kind of loan, you need to consider how much money you can put down, and how much you can afford to pay on a monthly basis.

7.Accepting the first offer:

Again, some people are very wrong by trusting the first loan officer interviewed. Be sure to shop around.
8.Believing 100% in internet reviews about mortgage companies:
Believing 100% in internet reviews about mortgage companies is a also a big mistake because some of these reviews are paid articles by some mortgage companies. Be sure to believe only in you and in your calculations not only in what others say.

9.Not checking to see if your loan has a prepayment penalty clause:
If you are getting a "NO FEE" home-equity loan, chances are that it has a hefty prepayment penalty clause. This can be very important if you are planning to sell your house or refinance in the next 3-5 years.

10.Getting too large a credit line:

When you get too large a credit line, you can get turned down for other loans, because some lenders calculate your payments based on the available credit and not just the used credit. Having a large equity line indicates a large potential payment, which makes it difficult to qualify for loans. Note: this argument holds even if your equity line has a zero balance.

11.Not understanding the difference between an equity loan and an equity line:
An equity loan is closed––i.e. you get all your money up front and then make fixed payments on that loan, until you pay it off. An equity line is open––i.e. you can get an initial advance against the line and then reuse the line as often as your want during the period that the line is open. Most equity lines are accessed through a checkbook or a credit card. On equity lines, you only pay interest on the outstanding balance.

Use an equity loan when you need all the money up front––e.g. home improvement, debt consolidation.

Use an equity line if you have an ongoing need for money or need the money for a future event––e.g. you need to pay for your child's college tuition in three years.

12.Not checking the life cap on your equity line:
Many credit lines have life caps of 18%. Be prepared to pay payments at higher interest levels if rates move upwards.

13.Going by rate alone:

The rate is only part of the equation. You need to know how much you'll be putting down and the terms of the loan before making a decision.
14.Choosing subjectively by your emotions:

Make sure that you have done your research up front, and you know which loan you want and how much you are prepared to pay.

15.Not reviewing your credit ratings first:

You should access your credit report and know what your FICO score is. This way you'll know exactly what the dealer is looking at, so that he or she cannot tell you your number is lower than it actually is. Additionally, if there are any errors, you can inquire about them beforehand.

16.Being quick to accept the dealership financing offer:

Dealerships typically offer higher rates because they buy financing from banks and other sources, and raise the rate to make a profit. Shop around.
17.Focusing on payments over price:

If you are focused more on low monthly payments than on the value of the car, home or mortgage, you may be paying more in the end. Know the overall value you need and consider the APR, terms, and length of the loan.

18.Not being able to walk away:

Once you begin negotiating, especially at a dealership, you are not obliged to stay. If you do not like the offer or the manner in which the negotiations are headed, walk away.

19.Getting a loan from your local bank without shopping around:
Many consumers get their equity line from the bank that they have a checking account with. Use your bank, but shop around first.

20.Not getting a good-faith estimate of closing costs:

Your mortgage company is required to provide you with a written good-faith estimate of closing costs within 3 working days of receiving the application.
21.Not taking the shortest term loan you can afford:

You'll always want to pay off the loan in the shortest time period you can afford. While the monthly payment will be higher in the short term, the interest payment will be lower. But, be very careful not the do it to short, as you wont be able to pay the monthly payment.

22.Not reviewing your credit report:

By reviewing your report and FICO score in advance, you can make an effort to improve your credit rating if necessary or have any errors corrected.

23.Not getting pre-approved:

This is the first step toward securing a mortgage and buying a home. Without preapproval, you do not know how much you will qualify for in a mortgage loan and what you can afford to spend.

24.Not shopping around:

There are many sources of mortgage loans. It is a mistake to go to the one that is most convenient or that was recommended by a friend without checking the rates and terms offered elsewhere.

25.Shopping by interest rate alone:

The lowest rates do not always mean the best mortgage loan. For example, you can get a low rate on an adjustable mortgage that becomes a significantly higher rate later on. You may also find that the lender is charging various fees that other lenders do not charge. There is also the question of whether you will be asked to pay discount points. You need to compare the overall package and not just the rate.

26.Not understanding the terminology:

You need to know the difference between fixed and adjustable loans, what closing costs are, and what various other key terms are before seeking a mortgage loan. Web sites and books about attaining a mortgage loan can help with the terminology.

27.Mismanaging your credit cards:

Prior to loan shopping you want to make a concerted effort to have your credit card balances paid off on time and in full. You also do not want to be opening and closing various credit card accounts. Plan in advance and have three or four credit cards at the most.

28.Not having the right mortgage broker:

You want a mortgage broker that is in tune with what you are seeking. In addition, if the broker works with several investors, you have more options than if he or she works with just one.

29.Not knowing how much you have available to put down:

You cannot look for a mortgage loan unless you know how much you need. To do so you should first determine how much money you have available for the down payment.

30.Not assessing your monthly expenses:

A mortgage will mean paying a monthly amount on top of your current monthly expenses. You need to determine how much you can comfortably afford to pay without dipping into funds necessary for other living expenses. Mortgage calculators are readily available on Web sites to help you determine how much a mortgage loan, with interest, will cost you on a monthly basis. Also factor in property taxes.

31.Neglecting to consider closing costs:

There are always closing costs when buying a house, such as escrow, title, and loan-related fees. This will vary from lender to lender and across different regions. Remember to account for closing costs.

32.Assuming that your home equity loan is tax deductible:

In some instances, your home-equity loan is NOT tax deductible. This may be the case if you make too much and fall into the AMT trap, or if you have pulled out more than $100,000 cash from your home. Do not depend on your mortgage company regarding this matter––check with an accountant or CPA.
33.Assume your initial quoted rate will be your ending rate quote:

Lenders often have some other excuse to change your original deal. For example, rate lock with the cave at all monies will be refunded if the appraisal comes in too low. Make sure you get some guarantees.

34.Assuming that a home-equity is always cheaper than a car loan or a credit card:

A credit card at 6.9% is cheaper than a credit line at 12%, even after the tax deduction. To compare rates, compute the effective rate of your home-equity loan, with the rate on a credit card or auto loan.

Effective rate = rate * (1 - tax bracket)
Example : If the rate of the home-equity loan is 12% and your tax bracket is 30%, your effective rate is : 12% * (1-0.3) = 12%*0.7 = 8.4%
If your credit card is higher than 8.4%, then the equity loan is cheaper, otherwise it is not.

Besides the interest rate, you may also want to compare monthly payments and other terms of the loan.

35.Getting a home-equity line of credit if you plan to refinance in the near future:

Many mortgage companies look at the combined loan amounts (i.e. the first loan plus the second) even when they are refinancing the first mortgage. If you plan on refinancing your first, check with your mortgage company if getting a second will cause your refinance to get turned down.

36.Getting a home-equity line to pay off your credit cards if your spending is out of control:

When you pay off your credit cards with your equity line, don't put your house on the line by going out and charging up those credit cards again! If you can't manage the plastic, tear it up!
37.Thinking that renting it doesn't worth:

If you can rent cheaper while saving money to buy your first home or car, it's not necessarily an unwise decision.

38.Paying unnecessary lender add-ons:
for mortgage life insurance, credit insurance or other expensive but unnecessary lender add-ons

39.Paying for something free:

Paying hundreds of dollars to have a company set-up a bi-weekly mortgage payment plan, which is something the borrower can generally do at no cost.
40.Not gathering all of the required paperwork:

Check all the applications and documents for accuracy. Mistakes in your paperwork might result in delay or denial, so be sure to proofread everything you do before applying for a loan.

41.Choosing a lender just because they have the lowest rate:

While the rate is important, consider the total cost of your loan including the APR , loan fees, discount and origination points. When receiving a quote from a lender or broker, insist that the discount points (charged by the lender to reduce the interest rate) be distinguished from origination points (charged for services rendered in originating the loan). The cost of the mortgage, however, shouldn't be your only criterion. Have confidence that the company you select is reputable and will deliver the loan with the terms and costs they promised. If in the final hours of the transaction you determine that the lender has suddenly increased their profit margin at your expense, you won't have time to start again with a different lender. Ask family and friends for referrals. Interview prospective mortgage companies.

42.Not receiving a Good Faith Estimate:

Within three business days after the broker or lender receives your loan application, you must receive a written statement of fees associated with the transaction. This is both the law and the best way to determine what you'll pay for your loan. Bring the Good Faith Estimate (GFE) with you when you sign loan documents. You should not be expected to pay fees which are substantially different from those contained in your GFE.

43.Not getting a rate lock in writing:

When a mortgage company tells you they have locked your rate, get a written statement detailing the interest rate, the length of the rate lock, and program details. Get it signed!

44.Not providing documents to your mortgage company in a timely manner:
When your mortgage company asks you for additional documents, provide them immediately. They are doing what's necessary to get your loan approved and closed. Delays in providing documents can result in costly delays.
45.Getting a second mortgage before you refinance your first mortgage:
Many mortgage companies look at the combined loan amounts (i.e., the first loan plus the second) when refinancing the first mortgage. If you plan on refinancing your first loan, check with your Loan Officer to find out if getting a second will cause your refinance transaction to be turned down.
You may wonder why did I chose 45 mistakes and not a round number like 50? Well, I could easily invent 5 mistakes to make it 50, like some of those ho make lists do, but, instead of just making a beautiful title out of it, I preferred to keep the quality intact.

So, the conclusion is: Shop around, Shop around, Shop around! "Think twice, do it once!"

Article Source: http://depositarticles.com/

Paul Michael wrote this article for Amortization-Tools.com, a free website with an Amortization schedule calculator. Article source: Top 45 mistakes when seeking a loan. Resources: wikipedia.org, allbusiness.com, consumercreditrepair.com, and choicefinance.net.

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