A mortgage is one of the largest financial responsibilities you’ll acquire throughout your life. Despite this, there are still some major mortgage mistakes many people make every day. If you’re interested in purchasing a home, you should do your best to avoid these potential pitfalls.
Your mortgage will be with you for probably the next ten to thirty years, and requires a significant investment of time to negotiate properly. When buying a home these are the top 10 mortgage mistakes to avoid in order to have a pleasant home buying experience.
Check Your Credit First
You should always check your credit before you begin your pursuit of a home. This is a mortgage mistake that many home buyers can easily avoid but don’t! You may have issues with your credit that you didn’t expect, such as judgments in another state or late payments on accounts you forgot about.
If you check your credit early on, you’ll avoid nasty surprises down the line. Some issues with your credit will be able to be resolved before you begin applying for your mortgage loan. You can pull your credit for free from each of the three major credit agencies once a year. Keep in mind that credit mistakes on your report can have an effect on your score which ultimately can have some bearing on the rate you are able to negotiate with your lender.
Don’t Apply for Any New Credit
Applying for new credit can have a dramatic effect on your debt load and your credit score. If you make a major purchase, your mortgage loan could fall through in the final stages. Many prospective homeowners make the mistake of believing that their loan has already been guaranteed and that it will go through before the new credit hits their reports.
However, delays can occur and your credit report will be checked by your lender prior to final approval. Even a single extra credit check on your report could potentially affect your score enough to affect your interest rate, even if it doesn’t result in the opening of a new line of credit. A couple of years ago while selling a home in Ashland Massachusetts, one of the buyers decided to purchase a car during the transaction and failed to tell their lender. The end result was the closing was delayed.
While all was not lost it easily could have been if this issue was not cleared up so quickly.
The mortgage industry has changed drastically over the last decade. Lenders are now far more cautious on who they give loans to. The lender will be very thorough when evaluating a new borrower. Don’t under estimate the scrutiny you will be under throughout the process. Making a major purchase is probably the #1 mortgage mistake made during the home buying process.
Don’t Underestimate Your Housing Payment
Your housing payment doesn’t just consist of your mortgage payment. Once you purchase your home, you’ll have to acquire homeowners insurance, pay property taxes and pay any homeowner’s association fees applicable. It’s very important that you consider these incidentals, as well as the repairs and maintenance you will have to do on your new home.
If you have been renting, you may not have needed to pay gas bills or water bills before, either. Regardless of the amount your bank approves you for, you should carefully go over your personal income and expenses to determine how much you can truly afford. Many home owners don’t allocate enough for those expenses that just happen to “pop up” from time to time out of the blue. Most first time home buyers don’t realize all the other expenses when purchasing a home. If you are not careful you could easily find yourself in the poor house without budgeting properly!
Don’t Make Any Large Deposits
Before you start the mortgage loan process, you should already have all of the funds you need to purchase your home. Any large deposits that you make will need to be tracked. This is to ensure that you do not receive money from other sources, such as private family loans or even gifts. Making large deposits is a common mortgage mistake that should be easy to avoid as long as you know it will create issues. Unfortunately many buyers are not counseled well enough.
Mortgage lenders need to be assured that all of the money you’re putting towards your home (with some small exceptions) came from you and no one else. Remember lenders are going to scrutinize almost everything you do during the loan process!
Stay In Your Current Job
Even if you’re moving to a job that has a higher rate of pay, changing positions in the middle of receiving a mortgage loan is almost never a good idea. Instead, ask your prospective employer if you can start after your closing date. Changing jobs can complicate the entire process, as your mortgage lender will need to reevaluate the stability of your position.
Always Get a Pre-Approval
A mortgage pre-approval is extremely important because it gives you a guideline on what you can spend on a home and will reveal any potential issues that could prevent you from getting a home. It is important for you to understand that pre-qualification letters are not the same as a pre-approval. There is a huge difference between being pre-qualified and being pre-approved for a mortgage.
A pre-qualification does not look at all of the aspects a pre-approval does and may not be as accurate. Most of the time when you get a pre-approval the lender will verify your credit and employment. When these steps are taken a seller is going to feel better about your ability to purchase their home.
Most pre-qualification letters are not worth the paper they are written on as nothing has been verified. A hidden benefit to acquiring a pre-approval is that it will help you get your financial documentation in advance.
Not getting pre-approved is a fairly substantial mistake that could cost you the opportunity to get your dream home if there are other buyers making an offer at the same time.
Always Shop Around
Some home buyers underestimate the difference just a fraction of a percent can make on their mortgage loan interest. You should always shop around to try to find the most favorable terms possible with your mortgage loan. To make the process easier, you can assemble a packet that already includes all of the information your first mortgage lender asked for regarding your pre-approval.
You can then forward this packet of assembled information to multiple mortgage lenders for a quote on their rates and terms. Throughout this process, you may want to inquire with both national and local lenders, as you can’t always predict which lenders will be able to give the most optimal rates.
Make sure when you are comparing mortgage programs you are doing it apples to apples. Points, closing costs and other fees can have a dramatic impact on the overall cost of your loan. While one lender may have a cheaper rate, if the rest of the costs are sky high you may not be really getting the best deal.
Keep Your Mortgage Simple
There are many exotic loan packages available, but many of them come with complications or catches. Keeping your mortgage simple is usually your best bet. When you introduce other types of mortgage loans you end up with more restrictions and a higher possibility of failure. Conventional mortgage packages and standard alternative loans such as FHA loans and VA loans are usually all an individual should need. Your real estate professional can discuss your personal financial needs with you.
Always Read Your Documents
Mistakes can happen. While your real estate agent will do their best to protect you during the actual purchase of the property, what occurs with your mortgage loan will usually be entirely between you and your lender. It’s not impossible for a mortgage lender to have inclusions within a loan that you hadn’t noticed or that hadn’t been properly discussed and explained to you.
When you go to your lender to sign your documents, you should carefully read each page and you shouldn’t be afraid to ask questions. The terminology used in loans can be very confusing and unique, and you aren’t expected to understand everything right away. Don’t make this careless mortgage mistake!
Always Lock In Your Mortgage Rate
Mortgage rates fluctuate on a daily level. If you don’t lock in your mortgage rate, it’s possible that you could be in for a surprise once you finalize your loan. If your mortgage loan takes a particularly long time to close, this difference could be fairly significant. This is especially true during periods when mortgage rates are going up quickly.
Mortgage loan rates are usually locked for a specific period of time, but you can extend the lock you have on your mortgage rate if your transaction is taking a while to close. While getting a mortgage loan may seem intimidating at first, it is a process that hundreds of people go through every day.
As long as you are careful and do the appropriate research, you should be fine. The most important thing to remember is to be knowledgeable about your personal financial situation, to not make any major financial changes throughout the process and to educate yourself about your financial options.
Keeping all the above mortgage mistakes to avoid in mind will prepare you for a smooth real estate transaction and hopefully years of enjoyment in your new place.