The home purchase process can be complicated, especially when it comes to mortgages. A mortgage is one of the most critical elements because it dictates the kind of property you’ll buy and for how much. Mortgage mishaps can happen and cost you more in the end. Understanding potential mortgage missteps and how you can evade them can help make your home-buying experience more seamless. Discussed below are the top seven mortgage mistakes you should avoid.
1. Not working with a mortgage broker
Mortgage shopping is one of the most difficult parts of buying a home. Home loans are not only a significant financial commitment, they’re also complex- and with many mortgage products available, finding the best deal suitable for your needs isn’t easy and may cause you to make mistakes. This is where a professional mortgage broker comes in. They assist in finding the most competitive and suitable mortgage for your requirements, accelerating the process while making it hassle-free. A Certified Mortgage Broker has the right professional qualifications and experience to offer mortgage advice and suggest an option most appropriate for you.
A mortgage broker can access mortgage products that might not be directly available to you, as some providers prefer giving their products via brokers and may not want to deal with the public directly. This allows you access to exclusive mortgages that could match your circumstances better.
Since brokers have access to various loan types, rates, and lenders, they can get unique rates that are more affordable than you would get by approaching a lender directly. Besides helping you save time and reduce the stress associated with looking for suitable loans and managing the entire mortgage process, a mortgage broker’s understanding of the mortgage market can prevent you from making costly home loan mistakes.
2. Disregarding your credit score
Your credit score is a significant factor when it comes to mortgages because it helps determine the rates you’ll get. It is a measure of your creditworthiness. Disregarding your credit score when looking for a mortgage can have severe consequences, including:
- Limited access to credit: When you don’t monitor or improve your credit score, it’s likely to be low, minimizing the possibility of getting a mortgage loan. A poor score can result in lenders not giving you pre-approved mortgages
- Difficulties in mortgage approval: For a provider to decide whether to approve your mortgage, they assess your credit score. Low credit may delay or result in your loan approval being denied
- High-interest rates: A low credit score paints you as an irresponsible borrower. If a lender okays your mortgage regardless of the poor score, you’ll likely be charged high-interest rates because you’re seen as a risk
With a poor credit score, you also lose the power to negotiate better mortgage loan terms. Consider monitoring and enhancing your credit score before applying for a mortgage to better your loan terms.
3. Failure to get a mortgage pre-approval
Not getting mortgage pre-approval makes it hard to establish a budget while risking sellers not taking you seriously, particularly in competitive real estate markets. A mortgage pre-approval is issued by a lender stating that they’re giving you a home loan and contains mortgage terms. It’s a lender’s commitment that provided your financial situation doesn’t change by the time you buy a home, your mortgage will be approved under the indicated terms.
Getting pre-approved for a mortgage at the start of your home-purchasing journey helps you discover the maximum loan amount you’ll receive. This enables you to determine the properties you can afford. If the approved amount is less than you hoped, you have time to assess your finances or save before going forward with the home-buying journey. A pre-approval demonstrates that you can get a mortgage, giving you a competitive edge over prospective buyers who’ve not been approved.
4. Ignoring mortgage insurance
Saving a 20% down payment can be a major barrier to homeownership for most people. Mortgage insurance makes it possible for eligible borrowers to buy homes by helping them get mortgage products with small down payments, which makes it easier to access the real estate/ housing market. It also safeguards investors/ lenders from losses if a borrower defaults on their mortgage repayments.
5. Not factoring mortgage closing costs
Closing costs are the funds you pay upon securing a loan when refinancing or getting a mortgage. The costs can range between 2% and 5% of the property’s buying price. The total closing expenses can be quite high if mortgage insurance or real estate agents/brokers are involved. The total closing costs you pay in real estate transactions vary significantly based on:
- A property’s purchase price
- The lender you choose
- Loan Type
Closing costs consist of:
- Appraisal fee
- Loan origination points
- Inspection fee
- Mortgage insurance premium
- Mortgage discount points
- Real estate commissions
- Prorated real estate taxes
6. Failure to shop around for mortgages
Research suggests that around 13% of home buyers shop around for mortgages. A lack of research may cost you more. Shopping for mortgages means finding home loans with lenders offering the best rates, customer experience, and loan options. Usually, affordability is a significant element when finding the right mortgage provider. Interest rates, down payment, closing costs, and fees determine how costly your mortgage will be/ can be influenced. When researching mortgages, review various mortgage loan types to find the best terms suitable for your unique condition.
Ensure you have all the documents required for an application when approaching lenders to ease mortgage pre-approval. While you may be tempted to go for the first lender you find, it isn’t always the best option. Shopping around lets you evaluate the loan, terms, interest rates, closing process, and financial requirements. Comparing mortgage products enables you to choose a lender suitable for you and your financial objectives.
7. Adding extra debt
Adding extra debt after mortgage pre-approval may result in loan denial as it significantly impacts your debt-to-income ratio (DTI). DTI is a major consideration by mortgage lenders because it determines your capability to repay the mortgage product you’re applying for. Different lenders have DTI requirements, meaning you can be eligible for a home loan at a higher or lower ratio, depending on your mortgage provider. To better your chances of getting a mortgage loan being denied after pre-approval, avoid taking additional debt.
Endnote
Mortgage errors can be costly and may lead to a bad home purchase experience. Familiarize yourself with the top mortgage mistakes you should avoid to ensure a seamless process.
