When we talk about mortgages, we’re talking about an extremely huge ordeal in order to lift ourselves from our financial woes. This means we have to think about the processes we’re taking in order to secure a good deal with the mortgage we’re planning to take. However, we can’t avoid but tend to overlook some mortgage mistakes. Unfortunately, doing these can have a detrimental effect on our financial future.
Here are some mortgage mistakes you should avoid, and why you should avoid them:
Not Making A Plan
Sometimes, we get too excited (or scared) to file for a mortgage that we tend to overlook some of the basics. We have to remember that preparation is key for a successful mortgage, given that this is a major financial decision on our part. This means we always have to plan for our mortgage carefully in order to make sure we secure a good plan to maintain financial stability.
- Check Your Credit: Before you even look for mortgage options, make sure you know your credit score and what it entails. This is because some mortgages have different rates depending on your credit. This ruling applies to almost all loans you may take because your credit is a reflection of how “well” you manage your financial assets. Meaning, we have to make sure our credit reports are clean. Make sure all information in your credit report is accurate down to your name and address, and that all information in there is accounted for. Remember, a low credit score can increase your interest rates by a few points, or maybe even don’t let you get any approval.
- Ensure Security: Lenders are strict when it comes to lending money because they want to have some form of security that you will actually be able to pay your loan. This means the bank or some lenders want to ensure you have seasoned assets or money that has been in your account for a few months. You also have the option to borrow money from a relative’s account and place them into yours for a while, but do this months ahead.
- Get Pre-Approved: When you apply for a mortgage, try to be pre-approved for the loan you’re looking for. This is because there’s actually an option to qualify for other financing methods before you even look for new houses. Pre-approval for a mortgage is actually more specific because banks and credit unions actually look at your credit, assets, get pre-approved for a mortgage income, and employment. This pre-approval will help you have a more accurate view of just how much you can spend when buying for a house. Your seller will also get a chance to see a written commitment on your end that you really are committed to paying for the home.
Not Being Careful
Remember that aside from being prepared, you have to be careful with the kind of options you’re considering for mortgage loans. Always read the documents that you’re given, and always assess and re-check them regularly. Be sure that you’re not entering into something extremely suspicious. If you don’t agree with something, don’t be afraid to ask.
- Check The Total Housing Payment: A lot of borrowers tend to forget to take into account the total housing payment. Remember, the overall mortgage payment consists of the principal amount with the inclusion of interest, your taxes, and the overall costs. This is why it’s called the PITI. However, also remember to actually factor the property taxes and the insurance premium you have into your overall plan as well. This is because your debt-to-income ratio is also used if you can qualify for certain mortgage types. The DTR is determined when you divide the proposed PITI cost by your gross monthly income. You may end up paying more than what you’ve expected if you don’t estimate costs accordingly.
- Check All Options: As a borrower, always check for other options. If, for instance, you don’t get pre-approved in one bank, don’t lose hope. Always look for options with multiple lenders and banks. Look for the lowest and best terms you could see. A lot of consumers only have one mortgage option, so don’t be one of them. Always be careful with checking other options, as you also need to apply all the potential extra payments on them.
- Remember to Lock In: In mortgages, “locking in” is essential because the rates you discuss with your lenders don’t stay forever while you ponder with your options. This is why other steps such as pre-approval and checking your assets is essential, so you already have documents to look back while thinking about potential loans. If you’re happy with your deal, “lock in” so it won’t change even for a certain period of time. If you’re really set, get it in writing so you will really be safe!
Not Being Stable
Lenders need assurance that you will pay for your loan, which means you’ll have to make sure you’re financially stable. You must have a job or a stable source of income, and try to not harm your credit throughout the entire process. Good financial behavior will likely get you higher credit, which means better chances of deals.
- Don’t Go For New Jobs: When applying for a mortgage, try doing it a few months after you’ve entered a new job. Try not to hop from one job to the next prior to and during the mortgage application. Remember, your credit is a big factor when it comes to your eligibility as a borrow. This means lenders want to make sure you have a means of consistently paying for the loan. If you really need an extra job, try taking part-time work or other kinds of paid work alongside your current job. If you really want to quit your current job, consider doing it after you’ve paid for the mortgage.
- Don’t Go For New Credit: In the spirit of being stable, try not to apply for other credit types throughout the process of your mortgage. This is because lenders can see this behavior as risky. They might think you won’t be capable of paying off your mortgage if you’re already applying for a credit before and during the mortgage application process. Even if you do have a plan in mind, it’s best to keep the other credit plans until after you’ve actually been accepted for the loan. Remember, applying for other types of credit or loans such as an auto loan when you’re already going for a mortgage loan might mean bad news for your credit score.
- Don’t Chase Exotic Loans: Yes, it’s true, it’s efficient to look for loans with the best options. But sometimes, don’t rely on loans that seem too unrealistic, because they tend to be unreliable. For instance, if the payment is low, you might be paying too much on the interest. This means the balance you’re paying will actually grow monthly. Be careful with these sketchy terms.
It’s surprising how people still tend to overlook some factors of their mortgages, which means you should be extra careful with each process you take. After all, if you make these mistakes in your mortgage, they can have an extremely detrimental effect on your financial future. Always remember to think one step ahead when it comes to your mortgages. How about you? What do you think are other mortgage mistakes readers should be aware of?