First-time home buyers often have difficulty when deciding how to go about securing their mortgage. With the plethora of options available and the seemingly contradicting advice from different lenders, it can be almost impossible to sort through the hype and get down to the fundamentals of mortgages. Following are the eight worst mortgage blunders and how you can fix them.
Mortgage Mistake #1: Applying Without Knowledge
How many times have you applied for a credit card or personal loan, praying that your credit score is just high enough for you to qualify? This might be standard practice for you, but don’t make this error when applying for a mortgage. Instead, order your credit report and FICO score at least six to eight months before you apply. This will give you an opportunity to pay off any debts and to repair any damage to your credit score, as well as challenge any problems that come up in your credit report.
Mortgage Mistake #2: Restricting Your Search to Private Lenders
You’ll be surprised by the number of first-time home buyers’ programs that are available through state and city governments, most of which will have better terms than what you would find with private lenders. First-time home buyers do have options, even when they don’t have the money for a large down payment or when their credit score is less than perfect. If this is your first time applying for a mortgage, seek out all options for saving money.
Mortgage Mistake #3: Waiting Until You Find a Horse
When real estate markets are doing well, home buyers must be proactive in finding not only the perfect house, but also reliable financing. Before you start looking for the home of your dreams, get pre-approved through your lender. This means that your lender has already guaranteed (in writing) that you can have X amount of dollars for a mortgage. Real estate brokers will take your offer much more seriously if you are pre-approved.
Mortgage Mistake #4: Borrowing Too Much Dough
Most people don’t realize just how much more expensive it can be to buy a home than rent an apartment or house. Even if your credit gets you approved for a large loan, you shouldn’t automatically purchase the largest house you can afford. Not only will you have a higher monthly mortgage payment, but you’ll also be dealing with insurance, higher utilities and other costs. This can act like a black cloud over any family and stretch finances far too thin.
Mortgage Mistake #5: Accepting the First Offer
You’ll find that mortgage lenders are as diverse as the homes they help their customers buy, so don’t feel obligated to accept the first offer laid in front of you. Not only can you negotiate things like interest rates, but you should also obtain quotes from at least five mortgage lenders before making a decision. Use your credit report and FICO score to determine exactly what you might qualify for.
Mortgage Mistake #6: Conceding to Junk Fees
Junk fees are the little fees charged by mortgage lenders to inflate your up-front costs in securing a mortgage. It isn’t uncommon to be faced with fees for document preparation and credit checks, often which cost much more than the administrative costs they represent. You typically won’t find out about junk fees until you’re close to closing on your loan, but make sure to scrutinize every fee and negotiate those you believe are unfair. If the lender won’t budge an inch, take your quote to another lender and see if they can beat it.
Mortgage Mistake #7: Forgetting Closing Costs
In most cases, closing costs are between two and seven percent of the total mortgage loan amount, which can be shocking for first-time home buyers. To prepare for this inevitability, get a quote from your mortgage lender as quickly as possible for how much closing costs will be. Once you know, you can set aside that money for this particular purpose. The last thing you want to do is get to closing and not be able to afford the assorted fees.
Mortgage Mistake #8: Depleting Cash Reserves
According to the experts, home buyers should have at least three months of living expenses saved up after closing on their new home. This way, when unexpected expenses arise, you don’t have to spend the money for your first mortgage payment and risk foreclosure. Many first-time home buyers don’t prepare for things like closing costs and moving fees, then find their checking accounts dry after they’ve moved in. Don’t let it happen to you.