Buying a home can be a tricky task, particularly for first-time buyers. A typical mortgage agreement can be a minefield of potentially problematic clauses. Before you draft a document and sign on the dotted line, here are five mortgage mistakes to avoid.
Thirty years is a long time to carry around a mortgage, so many homeowners will make extra payments when they have a little extra cash in order to speed up the process. But lenders make their money off the interest you pay, so the longer the mortgage, the more they stand to gain. As a result, an increasing number of mortgages come with early payment penalties — the lender will charge you extra if you make a lump-sum payment ahead of schedule. While you might think you’ll never have the cash to make a large lump-sum payment, there are still good reasons to avoid one of these types of loans. If you ever sell your home or refinance, you’ll effectively be paying off the loan early, and you’ll likely get dinged with high fees. To maximize your flexibility when paying off your mortgage, make sure you loan agreement is free and clear of these sorts of penalties.
Fixing It Up
Sometimes a home seems perfect, but the building inspector gives it a failing grade in a few key areas. Maybe the roof needs to be repaired, or the water heater needs to be replaced — things that can be can be fixed, but aren’t necessarily deal breakers. To sweeten a deal on a fixer-upper, many buyers will ask for repairs be made before the move-in date. However, this sort of deal can be problematic. An exiting owner has little incentive to do the job right, and you might spend the first few months in your new home chasing down contractors to redo the work. Rather than rely on the current owners to make the changes, you might be better off asking for a price reduction and making the repairs yourself.
Underestimating Monthly Payments
When figuring out if they can own a new home, many potential buyers do a quick back-of-the-envelope calculation to come up with their monthly payments and downpayment. Unfortunately, the mortgage only makes up a portion of your monthly payment, and many buyers — particularly those new to homeownership — forget to factor all the added fees into their monthly payments. Closing costs, such as attorney fees, home inspections and lender fees — can add 5 percent to the cost of the home. Most state and local government levy property taxes, which can add a few thousand dollars a year to the cost of owning a home. Add in the cost of monthly homeowners insurance and repairs and the monthly cost can be considerably higher than anticipated. So before getting too far along in the buying process, sit down with a financial planner to see what you can really afford.
During the housing bubble, lenders created increasingly complicated mortgage products as they looked to sell homes to more and more people. However, many of these mortgages proved to be extremely risky, leaving homeowners on the hook for loan payments they couldn’t afford. The purpose of these loans is to make it seem like a house is affordable today by luring people with the promise of zero down or a low initial interest rate that shoots up after a few years.
If you’re looking for a house with a low downpayment, mortgages backed by the Federal Housing Administration are usually your best bet, which allow you to land a home with a downpayment as low as 3.5 percent. And unless you plan on moving in less than five years, a fixed rate mortgage will almost always get you the best deal in the long run. So you’re better off skipping those loans that seem to promise the perfect dream home with little upfront costs.
Moving to a new home can be a stressful time. Don’t add to the stress by dealing with a rotten moving company. Here are some things to look out for when hiring a company to move your stuff.
Make Sure They Are Insured
You might think that all you need to start a moving company is two strong movers and a truck, but you’d be wrong. You need two strong movers, a truck and insurance. While you can probably save some money up front by hiring an uninsured moving company, you have no guarantee that your stuff will arrive in one piece and you’ll have little recourse if things break or go missing. Before even getting an estimate from a company, ask if they are insured and find out what their policy is for replacing broken or missing items. Most moving companies offer two different kinds of insurance. The cheapest — released value — only gets you around 60 cents per pound of lost or damaged goods. So if a 50 pound flatscreen television goes missing, you’ll only be reimbursed $30, significantly less than the cost of replacing the TV. Full-value insurance is more costly, but will ensure that you’ll be reimbursed for the full cost should things get damaged or go missing.
The best time to deal with lost or damaged goods is while the movers are still there. That way they can’t claim that items were damaged after the move. In order to stay on top of things, you need to document everything. Number each box and keep an itemized list of what’s inside. As the boxes come off the truck, check them off and give the contents a quick scan for damage. That way if a box goes missing, you’ll know immediately. If something does get damaged or go missing, get a receipt from the movers, so that you have it in writing.
Do Your Homework
While you can ask for references, most companies will be able to dig up a few happy customers to put in a kind word. To get an honest, unvarnished look, you should spend some time reading online reviews on Yelp and other review sites. If you’re hiring a moving company to take your stuff across state lines, the company needs to be registered with the U.S. Department of Transportation. The federal agency has a helpful site — ProtectYourMove.gov — that allows to you to look up driving records, customer complaints and other info about all interstate moving companies. Many states also require moving companies to be licensed, so check you state laws and make sure your moving company complies.
Get an In-Home Quote
Over-the-phone estimates might be convenient, but they often aren’t accurate. Many people get an unpleasant surprise on moving day when the moving company suddenly jacks up the rate and holds their belongings hostage until they pay up. With an in-home estimate, you’ll avoid miscommunication and get a chance to size up a potential mover. Do they seem shifty? Are they vague about costs or seem to be making things up as they go along?
You also have to keep in mind that there are three types of estimates. A binding estimate is a contract that the moving company has to to stick to. A non-binding estimates is a ballpark figure that can change after the fact. Finally, there’s a “binding-not-to-exceed” estimate, which means the job might end up costing less, but can’t cost more than the estimated amount. When possible, get a binding or binding-not-to-exceed estimate so that you know the exact cost before you sign a contract.