Although 40 percent of US homes are mortgage-free, the vast majority of people can only afford to buy their own property with the help of a mortgage.
The paperwork and pressure of securing a mortgage to finally buy your own home can make the process both exhilarating and daunting at once. But there’s far more chance of falling prey to the many common mortgage shopping errors if you fail to do your research when comparing mortgage costs and terms.
So, what mistakes should you try to avoid when shopping for a mortgage? Keep reading to find out!
1. Neglecting to Check Your Credit Score First
Approaching mortgage lenders without checking your credit first is like heading to a job interview without checking your teeth for spinach. Worse, in fact. Because mortgage lenders will leave no detail of your credit report unchecked before making decisions about your eligibility for a loan or what rates they can offer you. Neglecting to do your homework here can mean losing money or the chance to buy your dream home.
Instead of turning up and hoping for the best, you need to be proactive about your credit score. First, you should request a free credit report from one of the three bureaus (Experian, Equifax, and TransUnion) via AnnualCreditReport.com. You can then dispute any errors or work to increase your score if necessary.
2. Adjusting Your Current Lines of Credit
While your credit score is under such close scrutiny, it’s a bad time to open or close any lines of credit. For example, whenever you apply for a new credit card or even a store card, your score will dip. This is due to the applicable credit check and will count as a hard inquiry for around 12 months. The same applies to closing an old account. This reduces the available credit you have, causing a negative effect on your score.
Instead of rocking your financial boat in any small way, you want to keep doing what you’ve been doing. Which should include making on-time payments and chipping away at any existing debt.
3. Going With the First Mortgage You Find
Buying a home is one of the most significant and largest purchases you will ever make. It seems counterintuitive, then, to go with the first mortgage you find. Yet, that’s exactly what many people do.
We understand that finding a home you love means you want to hurry the process along. But even the simplest mortgage shopping strategy should involve comparing several options for mortgages. Through this process you’ll likely learn more about the whole process and, in turn, find more favourable mortgage loan terms for your specific financial situation.
For example, for those of you in the Las Vegas area searching for a mortgage broker near me PIF Lending will likely be your top choice. But it’s still worth comparing local mortgage trends and lenders for greater insight.
4. Putting Down as Little as Possible
Saving thousands for a down payment, especially while renting, is far from easy. But it’s always worth it to avoid the inflated mortgage costs that you’ll encounter with low down payment loans.
Most importantly, a bigger down payment cuts the principal of your mortgage loan. This, in turn, cuts the amount of interest you’ll pay over its lifespan. What’s more, minimal down payment mortgage loan terms also include what’s called a private mortgage insurance fee. This then adds to your monthly costs and will make your budget a lot tighter for the coming decades.
5. Mistaking Pre-Qualification for Mortgage Pre-Approval
Confirmation that your chosen mortgage broker is willing to loan you money can feel as though you’re close to the finishing line. But don’t start celebrating too soon. You might have only been pre-qualified, rather than pre-approved.
Pre-qualification is your lender saying, based on the information you’ve provided, you can get a loan. But until your information is verified, there are no guarantees. After all, while you wouldn’t set out to deceive your lender, you may have provided an incomplete or inaccurate account of your entire financial situation.
Mortgage pre-approval, in contrast, means that your broker has checked your credit score, income, and other financial details and has decided that you’re a safe risk. This pre-approval will then allow you to show the home’s seller that you’re ready to go if they accept your offer.
6. Signing Loan Documents You Don’t Understand
There are so many options for mortgages out there and so many mortgage loan terms, it’s understandable to feel confused or overwhelmed. And then there’s the financial jargon that you might never have heard before and concepts that might be simple for your broker to grasp but complex for the average person.
This is why it’s such a huge, albeit common, mistake not to ask questions. Nodding along and signing on the dotted line without understanding what you’re agreeing to could mean accepting mortgage loan terms that don’t suit you at all.
There’s more to a mortgage than the amount you’ll pay every month. It’s also about how much you’ll pay over the entire course of the loan, what your interest rate will be, and whether these figures are fixed or variable. Many lenders also insist on certain insurances and may request you to pay property taxes and other costs upfront. These fees aren’t always obvious at first but will make a huge difference to the final numbers.
Don’t ever feel like you are asking too many questions or bothering your broker by requesting clarification. After all, a good mortgage shopping strategy involves making informed decisions.
Avoid These Mortgage Shopping Errors
Although mortgages offer a lifeline for many people in search of their American dream, there are still many ways you can trip up when comparing mortgage costs.
But, now you know the mortgage shopping errors to avoid, selecting the right mortgage loan terms for you will be a lot easier!
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