Home equity loans and things to watch out for

Buying a house is a huge expense and one that will take years to pay, even under the best of circumstances, but many shoppers jump into buying a home with no more forethought than they would if driving to the grocery store for a sack of potatoes. The typical American won't spend more on anything in his or her life than on a home.

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If you plan to spend several times your salary on a house, you should do so from an educated viewpoint. By rushing into the mortgage or home loan process without doing their homework, numerous buyers fall into various traps that ultimately cost them money.

Below are some mistakes that buyers commonly make when shopping for a house and how you can avoid them.
 

• Neglecting to shop around for a loan. Shopping for a loan can be similar to looking for a car or truck - the prices will fluctuate from business to business. The median costs will be about the same from one lender to another, but the particulars will vary, and it's the particulars that can make a deal a great one or a poor one. You won't know how the prices can vary unless you do some looking.
• Failure to do research for a loan officer. Take a while to find a professional with whom you feel comfortable, as you are entrusting them with a lot of your money. There are good loan officers and poor ones, just like there are good and bad home loans.
• Is there a prepayment penalty on your mortgage? If you have a fee of several thousand dollars for taking out a new mortgage, you have a bad situation. Ask about prepayment fees and do your best to avoid them if you can. With rates often varying, many buyers find themselves refinancing several times within 10 years of buying their home.
• Final fees - Final fees are additional expenses that are added to the mortgage when you close, supposedly to account for the lender's costs and whatnot. Examine your financial paperwork thoroughly, as lending companies frequently add extra items to the contract without telling the buyer. You should learn beforehand what these fees are and compare that list to the list you see at closing. Final charges and closing costs may, and do, add up to thousands of dollars.
• Do not pay a fee to set up a biweekly mortgage payment. you can save with a biweekly mortgage, since you are making one more payment each year. You don't have to pay, as your mortgage company may allow you to set up such a plan for free. You are usually free to add extra principal to the monthly payment, and that costs nothing.
• Make sure that the rate of interest you are getting comes without having to pay "points" to obtain it. Points can add up in a hurry and turn a great deal into a bad one quickly. Numerous lenders will offer a rate and then add that you can get a more reasonable rate by paying a few points, where a point represents 1% of the loan amount.
• Using a dangerous Option ARM or interest-only loan to purchase a larger house than you can afford to pay. If you must use an Option ARM or interest-only mortgage, you are purchasing too much house for your salary. Be conservative when deciding on these types of mortgages or you may buy a house you cannot pay for.

These are simple items that can easily be overlooked, so be careful.