Home equity loans and careful refinancing

Buying a home is a big expenditure and one that will take years to pay, even under ideal circumstances, yet a lot of buyers jump into purchasing a home with no more planning than they would if going to the store for a gallon of milk. The average American will not spend more money on anything in his lifetime than they will on a house.

By rushing into the loan process without doing proper planning, many people fall into a variety of traps that soon cost them cash. If you intend to spend several times your annual salary on a place to live, you should do so from a knowledgeable perspective.

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Here are a few mistakes that shoppers often make when shopping for a home and how they can be avoided.

Is there a prepayment penalty or fee on your mortgage? If you have a several thousand dollar penalty for obtaining a new loan, you have a bad problem. Ask about prepayment penalties and do your best to avoid them if you can. With interest rates regularly fluctuating, many buyers end up refinancing a number of times within a decade of buying.

Using a dangerous Option ARM or interest-only home loan to purchase a bigger house than you can afford. Be careful when choosing these kinds of mortgages or you may end up with a house you cannot afford. If you must use an Option ARM or interest-only loan, you are buying too much house for your income.

Failing to shop around for a home loan. The average prices will be about the same from one mortgage company to another, but the particulars will vary, and it's the particulars that can make or break a deal. Looking for a mortgage can be similar to shopping for an automobile - the prices will vary from business to business. You will not know how the prices can vary unless you do a bit of looking.

Do not pay a fee to set up a biweekly loan payment. Yes, you are able to save with a biweekly payment, because you are making an extra payment a year. You are always free to add additional principal to the payment every month, and that costs nothing. You should not need to pay, as your mortgage company may permit you to establish such a plan at no charge.

Make certain that the interest rate you are offered does not include having to pay "points" to get it. Points can add up quickly and turn a good deal into a bad one very quickly. Most lenders will quote a rate and then mention that you can get a more reasonable rate by paying a few discount points, where a point represents one percent of the loan amount.

Closing costs - Final charges and closing costs might, and do, add up to thousands. Closing fees are extra fees that are added to the loan at closing, supposedly to compensate for the loan company's expenses and overhead. Read your documentation carefully, as loan companies often add additional items to the fine print without the buyer knowing. You ought to find out beforehand what these charges are and compare that list to the list you see when you close.

Neglecting to do research for a loan officer. Take a while to seek out someone with whom you can trust, as you are allowing them to handle a lot of your money. There are excellent loan officers and bad ones, just like there are good and bad loans.