Top ten mistakes, and how to avoid them
Buying, refinancing or borrowing against your home all have common traps. Here are ten for each, in plain words.
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Buying a home: ten mistakes
1. Shopping for a home before you are pre-approved
Sellers prefer buyers whose credit, income and savings a lender has already reviewed. A pre-approval also tells you your price range before you fall for a home. It is not a final approval: the home and the full file still go through underwriting.
2. Relying on spoken promises
If the seller agrees to leave the washer, it has to be in the written contract. In a home sale, the written contract is what counts.
3. Choosing a lender on the rate alone
Compare the whole Loan Estimate: the rate, the lender's charges, points or credits and the APR, for the same program and lock period. Choose a lender you trust to deliver what it quoted.
4. Not comparing your Loan Estimate and Closing Disclosure
You receive a Loan Estimate after you apply and a Closing Disclosure before closing. Compare them and ask about any change.
5. Not getting your rate lock in writing
Ask for written confirmation of the rate, any points or credit, the program and the date the lock ends.
6. Not understanding who your agent represents
When one agent works for both buyer and seller, their duties are limited. Know who represents you, and ask questions if you are unsure.
7. Skipping professional inspections
Unless the home is new and under warranty, get a home inspection and any specialist inspections it needs. If the seller agrees to repairs, check they were done before closing.
8. Waiting to shop for homeowners insurance
Start as soon as your offer is accepted, so you have time to compare and the policy is ready for closing.
9. Signing documents without reading them
Ask for copies ahead of time. The closing meeting rarely leaves enough time to read everything.
10. Not allowing for delays
Closings can slip. If you rent, think twice before ending your lease on the very day you are due to close.
Refinancing: ten mistakes
1. Not shopping beyond your current lender
Your current lender will usually need the same documents as any other, so it is worth comparing.
2. Skipping the break-even check
Divide the cost of the refinance by the monthly saving to see how long it takes to pay off. Moving to a shorter loan or from adjustable to fixed needs a fuller comparison.
3. Not comparing your Loan Estimates
Compare the rate, the costs and the APR on each lender's Loan Estimate.
4. Paying for an appraisal when the value is in doubt
If you are unsure the home is worth enough, ask your loan officer what the value needs to be before you pay for an appraisal.
5. Using the tax assessment as the value
Lenders use an appraisal of market value, which can be very different from the tax assessor's figure.
6. Signing without reviewing
Read your documents before closing, and check them against your Closing Disclosure.
7. Sending documents late
When your lender asks for something, send it promptly. Delays can cost you, especially with a rate lock.
8. Not getting your rate lock in writing
Ask for written confirmation of the rate, any points or credit, the program and the date the lock ends.
9. Drawing on your credit line just before you refinance
Recent draws on a home equity line can make a refinance count as cash-out, which has stricter rules. Ask first.
10. Taking a new second mortgage right before you refinance
Lenders look at all the loans on the home together. A new second mortgage can make a refinance harder. Ask before you borrow.
Home equity loans and lines: ten mistakes
1. Not checking for a prepayment penalty or early closure fee
Some home equity loans and lines charge a fee if you pay off or close them early. Check before you sign.
2. Taking a much larger line than you need
Some lenders count the payment on the whole line, even with no balance, which can make other loans harder to get.
3. Mixing up a loan and a line
A home equity loan pays one lump sum, repaid in equal payments at a fixed rate. A home equity line of credit lets you draw as you need it, usually at a variable rate, so the payment can change.
4. Not checking how high a variable rate can go
Look at the cap on a line's rate and plan for the payment at that level.
5. Not shopping around
Your own bank is worth asking, but compare offers before you commit.
6. Not comparing the costs
Compare the rate, the fees and the APR on each offer.
7. Assuming the interest is tax-deductible
It depends on how you use the money and your situation. Ask a tax adviser, not your lender.
8. Assuming it is always cheaper than other credit
Compare the real cost with your other options, and remember your home secures the loan.
9. Taking a line just before refinancing your first mortgage
Lenders look at all the loans on the home together. If a refinance is coming, plan the order with your loan officer.
10. Paying off cards without changing habits
Moving card debt onto your home only helps if the cards do not fill up again.
Have a question we did not answer?
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This page is general information, not a commitment to lend. Programs, terms and eligibility depend on credit, income, property and underwriting review and are subject to change without notice.