The home buying process is bittersweet. Make the right moves and you’ll end up in your dream home.
Make the wrong moves and it could lead to financial ruin. But you can tip the scales in your favor by avoiding common mortgage mistakes.
Get prepared for the closing process well in advance by avoiding these 5 pitfalls.
1. Check Your Credit
Don’t be surprised during the closing process by your credit score. It’s the worst time to learn you have potential negative items on your report that might not even be legit.
Request a copy of your credit report well in advance of even searching for a home. This puts you in control of your lending options.
With a high credit score, you can shop around for the best rates and negotiate with lenders much easier. Clean up your credit report before starting the preapproval process on a new home. It’ll save the mortgage broker time and you lots of headache since you won’t have to guess whether you’ll be approved.
2. Get Preapproved
Avoid searching for your dream home without knowing what you can afford. It’s hard to get used to a shack when you thought you’d be living in a mansion.
Keep your expectations in check by getting preapproved for a mortgage loan before you schedule home tours. Once you’re preapproved, you’re in a much better position to start requesting your favorite home features.
You’ll learn very quickly whether or not your ideal features are realistic at your price point. If they’re not, you can always wait to buy later on when you’re in a different financial situation. By knowing what you qualify for now, you won’t have to settle later.
3. Buy Big
Many homeowners get excited at the idea of preapproval on larger homes. But bigger isn’t always better.
Bigger homes come with larger mortgage payments and higher maintenance costs. Start small to get used to the expense of homeownership before committing to the home of your dreams.
4. Ignoring Loan Terms
Interest rates don’t tell the whole story when it comes to mortgage terms. It’s possible to have one lender quote you a low interest rate, but have fees so high you end up paying more for the mortgage than you would with a lender with a higher interest rate.
Pay attention to the hidden cost of the mortgage like the origination fee and other closing costs. These are variable expenses that differ from lender to lender. Use a mortgage calculator that allows you to enter in the APR and fees to get the true cost of your mortgage loan.
5. Tiny Down Payments
Small down payments can make you feel like you’re basically getting into a new home for free. But there is a cost to a lower down payment.
Borrowers who can’t put down 20 percent typically end up paying private mortgage insurance. Depending on the amount of your loan, this insurance can add hundreds of dollars to your monthly mortgage payment.
Mortgage Mistakes Are Avoidable
The best thing about most mortgage mistakes is that they’re completely avoidable. The trick is researching ahead of time to learn best practices when going through the home buying process.
As the saying goes, an ounce of prevention is worth a pound of cure. You can’t simply change your mind if you find out too late that your mortgage loan doesn’t work for your budget.
Take your time shopping around before getting locked into a mortgage loan that doesn’t work. For more information and lifestyle tips, visit our blog for updates.