Warning; Those Home Owners Without A Specific Mortgage Plan Are Destined To Lose Thousands In The Current Volatile Market

Please use our website here at How Do Mortgages Work, and set yourself up to make the entire process simple and easy.

When developing your home mortgage plan, you need to be aware of the 4 most common mistakes made by home owners when shopping for a mortgage refinance or new home purchase loan.

Avoid these common mistakes when attempting to refinance your home and you'll be well on your way to beating the system and avoiding the possibility of being taken advantage of.

Residential mortgage lending and mortgage loans are not as complicated as some would have you believe, as long as you have a better plan than just asking for the current mortgage interest rate.

Home Owner Mistake #1

Before you get started, you absolutely must know the value of your home, especially if doing a home mortgage refinance. Home values have been decreasing in the past few months and you'll want to know up front the true value of your home. Getting the best mortgage rates starts with knowing your current home value.

Home Owner Mistake #2

Know your credit score and credit profile. A credit score is typically lower than say an auto loan score or a credit card score (consumer score) used for smaller loan amounts as opposed to a home loans score. You can get he inside details on credit at MyFICO.com or get access to your consumer credit score at TrueCredit.com. Remember your consumer credit score is typically higher than your mortgage score. If your score is low (below 620) then you'll want to visit a credit repair website such as LexingtonLaw.com << they do a terrific job of removing negative items from your report and getting your score mortgage ready. A bad credit mortgage refinance is certainly possible if you at least have a handle on your credit score and overall profile first. A general rule of thumb is that your credit score affects the mortgage interest rates you'll be quoted.

Home Owner Mistake #3

Beware, if you fill out an online form requesting a mortgage interest rate quote, expect at least 10 to 30 brokers to be ringing your phone trying to earn your business. One such place to request a quote is LendingTree.com or LowerMyBills.com. You are better off using those websites as opposed to going directly to a lender who will most certainly have a limited number of options available.

Also, do not base all of your plans on figures from an online mortgage calculator before you know exactly how and why to use one.

Competition on your lending options is terrific, but you absolutely must be prepared to make all brokers work for your business. The following is a sample list of "informed" questions you can ask each broker to maintain control over your lending options.

Questions to ask your loan officer:

1. First off, DO NOT ask for the lowest rate. Why? It's a common beginner mistake and the loan officer will see your inexperience coming a mile away. You don't always want the lowest mortgage rates. Why? Simply because the lowest rate isn't always the most cost effective. Shopping on interest rate alone will almost always cost you more at closing and more in the long run.

::Insider Tip:: it's good to know what the term "jumbo loans" refers to. It's simply any loan above $417,000. Rates begin to increase above this loan limit.

2. Know which home mortgage product to ask for, such as 30 year fixed mortgage, interest only mortgage or a shorter term ARM (adjustable rate mortgage). One basic criteria to use when choosing a loan type is to ask yourself - "how long will I be living in this home?". If the answer is 5 years or less then a shorter term ARM might be a good fit however watch out for pre-payment penalties and ask up front exactly what the pre-payment penalty is on the ARM loan you get quoted on. Pre-payment penalties can be a good thing for some because they allow a lower interest rate since the lender is taking less risk of you paying your loan off early (or refinancing again). Don't rely on the mortgage broker to choose the best product type for you. Do your homework first and have an understanding of the term you are looking for.

3. Be sure to ask for a GFE or Good Faith Estimate. There are a lot of pitfalls you can experience on the Good Faith Estimate, however one insider trick you can use is to tell the loan officer to include the following items on your GFE.

3a. If you are staying in your home less than five years, it's possible to indicate that you want the "no points" rate to avoid prepaid interest (however paying points can sometimes make sense, see the menu items to the left to get into this particular subject in more depth.) This shows you understand the process more than just asking for the lowest interest rate.

3b. Ask that they disclose line 824 on the GFE, which shows how much the wholesale lender is paying the broker to do your loan (called YSP or Yield Spread Premium). If you are paying points on line 801 and the broker is also getting paid on line 824 you "might" be over paying. Either way, having the loan officer show line 824 will put you in the drivers seat and let them know you are knowledgeable about the process.

Note: closing costs, just like getting the best interest rate is not the only thing to take into consideration. Just looking at total closing costs is not as important as 3a and 3b above. Most costs such as title insurance and local and state taxes.

::Insider Tip:: a home equity line refers to an equity loan. This can either be a line of credit drawn on the equity in your home OR a lump sum withdrawn from that equity. Equity refers to the difference between what you owe on your home and the appraised value.

Home Owner Mistake #4

Once you've chosen a loan officer based on things "other" than refinance rates alone, you should begin the process of locking your interest rate and getting a copy of the rate lock confirmation from the loan officer on mortgages which offer such an option.

Here's what you should say to accomplish this task; "I'm ready to lock my interest rate, I prefer a 30,45,90 day lock" etc. (based on how quickly you want to complete the financing) [the longer the lock the higher the interest rate]. Then you'll want to say; "Once my rate is locked, please forward me the rate lock confirmation sheet". This fact sheet should show a loan number, the wholesale rate, the YSP (line 824 as requested above) OR the points you'll pay along with the lenders name. If the loan officer can not provide this info to you within a few hours or less -- move on and cross him off your list of loan providers.

Note: not all loans come with rate lock capabilities. Your typical 30 year fixed or ARM loans can be locked, most subprime loans and the reverse mortgage are not typically locked. The menu links to the right will cover this topic in depth so navigate around our site and get better informed on this topic.

If you follow the basic plan above, you'll be less likely to be taken advantage of. Is the above plan absolutely complete? No it's not -- however if you take your time to navigate this website you'll be more informed than 99.99% of all home owners who take on the task of refinancing your home and navigating the mortgage lending maze which usually get's home owners lost in the mist and confusion of home loans, conforming loans and all of the different home loan products.

Spend some time here and get informed about the mortgage financing and mortgage lending process. You'll be glad you did -- and saving thousands in the end on your mortgage isn't a bad payoff either.

How Do Mortgages Work?