Careful consideration can help you avoid making lasting mortgage mistakes. Even just a few of these blunders can cost you thousands on your new home. Avoiding the following common mortgage mistakes can help you feel confident in your home buying decision. It also allows for a better chance of mortgage acceptance and better financial security in the long run.
Before you start looking for a home or apply for a mortgage, you need to get pre-approved. Pre-approval tells you how much money you can borrow. This allows for a more realistic house-hunting budget based on how much monthly mortgage payment you can afford.
To pre-approve you, lenders look into certain factors, including your employment history, credit score, debt to income ratio, and total income. Most real estate agents only work with pre-approved buyers because they have a higher chance of securing financing for the home.
Keep in mind that although getting pre-approved makes it easier to apply for a mortgage, it's not an assurance that you'll close on that mortgage.
Most people compare products before purchasing so they can get the best deal. For example, homebuyers would shop around for houses before saying they found the "perfect" home. But, unfortunately, a lot of these buyers do not do the same for mortgage rates.
Each mortgage lender may offer different rates for the same loan terms. You're not necessarily going to look for the cheapest one, but for the terms that suit your needs and financial situation.
Shopping around for rates can be tiring. But at Ebenezer Mortgage Solutions, this won't be a problem. All you need to do is provide us with the details required for the mortgage application, and we'll be the ones doing the legwork.
Another mistake that some homebuyers make is thinking that all mortgages are the same. Knowing which type of mortgage is right for you is important since you'll be paying off that mortgage for quite some time.
Should you choose a conventional or FHA loan? Are you qualified for a USDA or VA loan? Should you choose a variable- or a fixed-rate mortgage? 15 or 30 years? These are just some of the questions that you might want to ask yourself in selecting a mortgage. And if you're not sure how to answer, ask for help.
Mortgage terms can be intimidating, especially for first-time homebuyers. However, it's crucial to understand what your mortgage entails since it can affect you for 15 to 30 years of your life.
For example, understanding the difference between variable- and fixed-rate mortgages might save you more in the long run. Most people also don't know the meaning of terms such as amortization, escrow, and closing costs.
If you're working with a good mortgage broker, you don't have to worry about memorizing all the mortgage terms. At Ebenezer Mortgage Solutions, our mortgage broker will help you understand these terms and help you navigate the home buying process.
One of the biggest deciding factors for lenders in approving your mortgage is your credit health—specifically your credit score and history.
Each mortgage type has their own minimum credit score requirement. Borrowers with better credit scores also tend to get better interest rates than those who have lower scores.
Unfortunately, fixing your credit score and history takes several months or years. So if you're planning on buying a home, the first thing you need to do is check on your credit health. Make sure that you've paid bills and balances on time. If there are errors on your credit report, dispute them immediately.
After pre-approval, some borrowers either close their credit accounts or open new lines. But remember that changes to your credit, whether good or bad, affect your credit score. And making these changes so suddenly might actually hurt your credit score, especially if it's done the wrong way.
Having many credit accounts open does not affect your credit score if they are handled responsibly. But if you really need to cancel an account, try to bring the balance down to zero so you can avoid any credit score damage. It will also help to take stock of your spending habits. But it's best to ask for advice from professionals before making significant changes to your credit accounts.
Mortgage products which offer zero or low down payment can be very tempting for most homebuyers. But if you can make a substantial down payment, then do it.
Zero to low down payment offers allow homebuyers to own a house faster. However, it comes with bigger responsibilities such as higher monthly payments and mortgage insurance. It also makes you lose your competitive edge against other buyers who can offer a larger down payment.
Most homebuyers are fixated on the home's purchase price and the amount that they can borrow. And then they get surprised when they have to shell out some extra cash upon closing.
Generally, you have to prepare to pay for expenses such as escrow fee, title insurance, underwriting fee, and home inspection on top of your down payment.
Moreover, after purchasing your home, monthly payments are not the only costs you need to pay. You also need to budget for homeownership expenses such as maintenance, utilities, and home warranty.
Let's say you get approved for a larger mortgage, allowing you to buy that massive house you've been eyeing. But should you do it?
Before you do so, ask yourself, "how much house can I afford?" Then, consider your lifestyle and expenses. You might be able to afford the monthly mortgage payment, but would you still have enough for emergencies, your kids' education, and fun? No matter how beautiful your house is, if you're stressed out about paying for it, then it might become another mortgage horror story.
Buying a home takes a lot of careful consideration. The stressful process of searching and applying for a mortgage can add further strain. But by talking to a professional mortgage broker, you can significantly reduce the stress.