There are just so many factors new and returning homeowners have to consider before making their final decision. One of these factors is the mortgage itself, as the wrong home financing option can end up costing you big time.
9 Mortgage Mistakes To Avoid When Buying a Home
Most people will only purchase a home once, maybe twice, leaving the floor open for mortgage mistakes. With proper research, you can feel confident that you’re getting the best deal.
1 – Not Shopping Around to Find the Best Mortgage Rates
Different mortgage companies and lenders will offer different mortgage rates and fees, so it’s essential to shop around for the best mortgage dealers instead of settling. You should also speak to local mortgage dealers, as they’ll have a grasp on the local real estate market.
2 – Going for Pre-Qualification Instead of Pre-Approval
Pre-qualification is next to useless for homebuyers, as it doesn’t take the borrower’s information into account. If you have a spotty financial record, you won’t be able to secure financing. With pre-approval, lenders review your financial information, so they can secure the mortgage.
3 – Putting a Small Down Payment on a Pricey Home
Most states allow borrowers to take out a mortgage with a 5% down payment, but if you pay less than 20% of the home upfront, you have to have mortgage insurance. If you’re purchasing an expensive home, a low down payment could leave you drowning in interest payments.
4 – Neglecting or Ignoring Your Credit History and Score
Potential homeowners need at least a 620 credit score to get a mortgage, but a higher score improves their chances of approval and reduces their interest rates. People with a 740 score or higher get the best interest rates, so work on improving your credit history before applying.
5 – Adding Too Much Debt Before Applying for a Mortgage
Mortgage deals prefer to lend money to people with a debt-to-credit ratio of 30% or lower. At the same time, lenders won’t provide a mortgage to potential homeowners if they incur a high amount of debt in a short period. This could mean you’re irresponsible with money.
6 – Skipping the Rate Lock on Your Mortgage Application
When filling out your mortgage application, you can decide to lock in your mortgage rate. If you do this, you can use the current prevailing mortgage rate for a specific amount of time (usually 7 to 90 days). If you decide not to lock in your rate, you may pay higher fees on the closing date.
7 – Misunderstanding The True Cost of Owning a Home
Owning a home is expensive once you factor in utilities, repairs, and other living expenses, like auto insurance and groceries. If you don’t consider the total cost of owning a home, you could price yourself out of the house you’re living in. Consider your whole budget, just to be safe.
8 – Having a Sporadic Job History or Living on Credit
Lenders won’t think you’re responsible enough to own a home if you consistently open up new credit lines, have a sporadic job history, or you’re recently self-employed. Job stability and a consistent income are necessary to get a loan and stay on top of your mortgage payments.
9 – Waiting Too Long to Shop for Homeowners Insurance
Homeowners insurance is required for buyers who are financing their home purchase and waiting until the last minute could cause you to pay more for the same product. Since you know you’ll have to get insurance before your closing date, shop insurers ASAP to get a good rate.