Buying a house is one of the most significant purchases you will ever make. As such, the process needs to be meticulous, so you do not end up hating a property or the financial debt a mortgage leaves. For this to happen, you need to be aware of the mistakes most home buyers make when applying for a mortgage.
Having a Low Down Payment
As important as owning a home is, some lenders never take the time to build enough equity for a down payment. Lenders will require 5% to 20% for a down payment, and anything less than this will cost you more.
For starters, anything less than 20% will most likely cost you mortgage insurance. This will increase your monthly payments by about $100.00 or more, depending on the lender. Second, a lower down payment means higher debt, which translates to paying more for the mortgage than if you had higher equity.
Ignoring Your Credit Score
Your credit score and credit history are of the utmost importance when applying for any loans, including a mortgage. A low credit score and history will either lead to rejection or worse payment terms like high-interest rates.
Before you approach a lender for a mortgage, ensure your credit report is in order. If there are any delinquents, ensure you clear them. Try to sort out any mistakes that could lead to rejection or unfriendly terms before approaching a lender.
While at it, avoid making any intentional changes, like significant loan repayment. These might not improve our credit rating, and the money could go towards building equity for your mortgage. If you are in such a situation, consider talking to your financial advisor before taking any step.
Not Comparing Lenders
Shop around and compare mortgage terms between lenders. A mortgage is not a one-size-fits-all kind of deal. Lenders offer different lending terms, from interest rates to fees and even promotions.
You will only get the best deal if you shop around. It might take a while to compare different lenders, but it might save you a couple of bucks.
Forgetting Additional Costs
Securing a mortgage is only the first step. The second includes the monthly payments and other additional costs like insurance, taxes, closing fees, as well as your monthly expenses.
Sometimes home buyers are only interested in securing a mortgage and never think about the costs. With this, you end up getting a mortgage you can barely afford, one that leaves you applying for more debts to meet your monthly expenses.
Not Doing an Inspection
Whatever you do, when buying a house through a mortgage, do not skip the house inspection part. Ensure that you get an inspector who can write a detailed report about the status of the property.
You need to know every part of the house’s status- from the inbuilt appliances to the foundation, ventilation, electric wiring, garage, the attic, among other areas. Failure to do this could leave you with a property that needs a lot of money to patch things together. This money will not be part of your mortgage.
By carrying out an inspection, you can bargain the property’s price, especially if it needs a lot of repairs.
Not Getting a Mortgage Pre-Approval
Do not focus on only getting a mortgage pre-qualification and forget about getting a mortgage pre-approval. Usually, a mortgage lender does not consider factors like your credit ratings and income level when issuing you a mortgage pre-qualification. The lender will mostly consider your offer’s information, which might not be valued that much by home sellers.
Most home sellers prefer buyers with a mortgage pre-approval. It shows the buyer’s ability to get the mortgage. It will give you a competitive edge and give you a glimpse of what you can afford so you don’t have to deal with the heartbreaks of falling in love with a house you cannot afford.
Not Having An Agent
Unless you are familiar with all real estate terms and modes of operations, you are better off with an agent. The seller’s agent is just that- the seller’s agent. Their goal is to sell the property as fast as possible and at the highest price, so they can get a commission. Anything you tell them, even personal details, will be used against you during the process.
But that doesn’t mean you have to tell the agent all your secrets or show how desperate you are to get the house. It’s important to keep all communications as official and professional as possible. A personal agent will explain all the real estate jargon you do not understand and act in your best interest. You do not have to deal with the seller if you have an agent, which can help smoothen the process and release any tension.
Settling for Adjustable-Rate
While an adjustable-rate might offer you low-interest payments for the first few years of the mortgage, the mortgage can be expensive once the rate becomes adjustable. When the rate adjusts, the lender will use the market rate, which is usually higher than the fixed rate.
If you are willing to refinance the mortgage and probably use part of the equity when the rate adjusts, you can settle for an adjustable-rate. However, if the rates drop, refinancing becomes difficult and will mostly leave you with higher payments than you previously had.
The bottom line is buying a house can be overwhelming but do not rush into it. The fewer or no mistakes you make during the process, the more you get to ensure the property you are getting is the perfect one, and your mortgage terms are the best. Take all the time you need to go over your financial situation and goals, credit reports, and budget for a house.