In the whirlwind of the mortgage process, the paperwork, closing costs, it is easy to overlook a document here or to get carried away. Homebuyers, both first-timers and residential investment property seekers, fall victim to the many mortgage mistakes in the road to owning a home. This list is to help homebuyers avoid common mortgage mistakes and make the buying process easier for all involved.
1. Not figuring out your budget
You should figure out how much you are willing to spend. Often, what the bank is willing to lend you might be more than you can afford. Take into consideration your monthly expenses, like your rent, bills, credit cards and such. It is also a good idea to have a nest egg as some unexpected expenses might come up, such as insurance. Sorting out how much you’re willing to pay before going shopping will spare you the heart break of falling in love with a home above your comfort zone. You might also want to take out the time to raise your credit score as much as possible, as you will get better and lower interest rates the higher your credit score is.
If you are in the final steps of closing on a home that stretches your wallet, consider what might happen if the interest rates on the mortgage were to suddenly go up. Before signing any final documents, make sure that the home you are about to purchase is within a comfortable and reasonable range.
2. Location, Location, Location
During the process of shopping for your home, thoroughly research the location. Look into future development plans, if any major roads pass close to the house, and how close essentials like shops and schools are. Check the property value trends in the area, if it has been increasing, reducing, or fluctuating. Missing researching the location before signing up for the purchase is one of the common mortgage mistakes!
Visiting the area at different times of the day will help you get a better feel of the area, what the early morning commute is like, and whether it is unsafe after dark. Missing re Remember that this a neighborhood that you will live in for years to come, so follow your gut instinct.
Many can’t afford to move immediately after purchasing a house. Or at least tolerate it more until it is possible to find better accommodation.
3. Forgetting to Get Your Mortgage Pre-approval Letter
While the Mortgage Prequalification or Preapproval are sometimes used interchangeably, there are key differences between them. Getting a pre-approval letter will show potential sellers that you are able to get financial assistance and will allow them to seriously consider you as a buyer.
While it is better to get it early on in the process, it is possible to get one if you are further down the mortgage process.
4. Not Comparison Shopping for Mortgage
This is the most important step in the home buying process. The house you buy is one you will live in for years to come, and it is followed by a hefty price tag and interest. Getting the best possible deal for your home is incredibly important. Don’t be afraid to look at different options, contact multiple lenders and look at varying mortgage offers. Look at different closing services, insurance companies and investigate any other possible costs. If this seems very overwhelming, here at Stem Lending, we deal with the most head ache inducing parts of the process for you. We specialize in mortgages and will assist you regardless of your circumstances.
5. Being Inflexible
When house shopping, keep in mind what exactly you want from a house. If you want a lawn space for your children or dogs to run around, don’t be tempted by a high-rise apartment because of the price or its location. Don’t fall into the trap of being overly selective either, you might overlook some things that may be changed. For instance, do you love the house but just hate the tiling and paint? You might consider making some adjustments. Just don’t spend too much! Simple projects can easily build into incredible expenses. Discuss with the agent about what possible steps can be taken, especially if the house is a fixer-upper.
6. Forgetting Renovations Costs
Forgetting budgeting for renovation costs is also among major mortgage mistakes! During the shopping process, you should aim to make as few adjustments as possible. If you must renovate, make sure it adds to the total value of the property. Small adjustments tend to add up quickly and might end up costing you more than if you had just bought a slightly more expensive house. Things like painting, tiles, moving or adding a switch might end up costing you thousands. So if you plan to renovate, get a professional to get a realistic cost estimate.
7. Missing Professional House Inspections
Before signing that contract, have professionals, preferably those not recommended by the seller to inspect the house. Look at the roofing, electrical and heating systems, plumbing, pest infestations, and rot to name a few. The inspector should also check the surrounding area for drainage, and plants that may affect the house. Even if the seller provides an inspector, you should get more than one done, to root out anything that may have been overlooked and ensure that the house you are about to purchase is in good condition. Ask the seller for a disclosure, so that the professionals can follow up on any known problems.
8. Not Reviewing Mortgage Contracts Thoroughly
Mortgage fraud is a serious crime that can be punishable by imprisonment. When comparing lenders, verify the licenses. It is a red flag if the lender or agent is using high-pressure sales techniques. Take your time to review all the documents, keep track of any changes that have been made, and ask as many questions as needed until you completely understand the terms of your mortgage.
Never ever sign a document you don’t understand or one containing blank pages. Make sure that your information is correct and complete on all your loan documents. When it is time for the final signature, take your time to go through it. Don’t let a closing agent rush you. After all, they are after their interests, not yours.
9. Forgetting the Closing Costs
Many home buyers tend to underestimate the total cost involved in buying a home. The costs involve more than just the monthly payments. They also include closing costs, (which further include things like appraisal fee, title fee, recording fee, and underwriting fee to name a few.) You will also pay the agent’s commission, property taxes, private mortgage insurance, homeowners’ insurance and utilities. For your peace of mind, seriously consider the one time and monthly costs of buying that house before going on to close.
10. Being Haphazard In Preparations
Having all your application documents in order will significantly smoothen the journey to finally having your own home. Typically, you should have your last two years of tax returns, last two months’ bank statements and documentation supporting your assets and liabilities ready. Monitor your credit report: to get the best interest rates, your credit score should be as high as possible. Get your free annual credit report, and correct any mistakes in it.
You could consider getting loan estimates from different lenders or hire a service such as Stem Lending, that will compare lenders and mortgage products tailored for you: your location, credit score and target loan range, to get the one that best suits your needs. Get a mortgage pre-approval which lets you know how much you can afford to spend. Set your priorities.
If you follow these steps, you will avoid the most common mortgage mistakes homebuyers make and get the best deal for yourself. Enjoy shopping for your home with confidence.