There are some significant factors to consider as you begin your search for the perfect home. No need to let that stress you out. The best ways to avoid newbie mistakes is to be prepared and educate yourself on the home buying process. Below, are the top six mistakes you should avoid when getting a mortgage.
Failing to Check Your Credit
There are so many things that rank high in terms of importance, but realistically, having good credit is a big factor in obtaining a mortgage. Start by first educating yourself on what impacts your credit score. Then, carefully review your credit report. You will want to check for any erroneous information, in case you find issues that need to be corrected. Next, review your credit score to see if you need to improve your credit before beginning the mortgage process. If your credit needs work, it’s best to take some time to whip it into shape so you will qualify for the lowest interest rate.
Not Playing The Comparison Game
When it comes to obtaining a mortgage, not all lenders are created equal. Each lender has different mortgage rates, so shopping around for the best deal can save you a big chunk of change. When you are planning to a home for the first time, check your primary bank first, however you could get a much better rate working directly with a local mortgage banker.
Not Lining Up Financing First
It is so easy to find yourself casually browsing Realtor.com and falling in love with the perfect home. However, one of the biggest disservices you can do to yourself is to become attached to a home, only to realize during the mortgage application process that you can’t afford it.
In many real estate markets, sellers are looking for buyers who have already received a pre-approval from a lender. Taking this step as a buyer paints a detailed picture of your finances, allowing your lender to tell you the specific amount you’re approved for and giving the seller peace of mind that you will be able to purchase the home if they decide to move forward with your offer.
Not Saving Enough For A Down Payment
Perhaps your lender said you qualify for a $200,000 home, so you begin looking at home right around that amount. However, don’t forget to consider the down payment that you will need to have at closing. At a minimum, for a $200,000 FHA loan (with 3.5% down), you will need to bring $7,000 plus additional closing costs and fees in cash to the table in order to close on the home. If you don’t have that amount of money stashed away, take some time to build up your savings before starting your home search.
Not Preparing For Additional Fees
In addition to the cash you will need for a down payment, there are other fees you will be responsible for in order to close on your new home. Some of these fees may be negotiable, but many are fixed.
Be prepared to shell out cash for the appraisal title, insurance, up-front real estate taxes, lender fees and more. Several days before closing, you will receive a closing disclosure, which breaks down the terms of your loan, all final costs expected at closing and the details of who receives money at closing.
Making Big Purchases Before Closing Day
You’re probably so excited about moving and planning and planning how you’re going to decorate your new home. However, before you go on a spending spree, put that credit card away!
Your finances will be thoroughly analyzed during the underwriting process, and your lender will expect your financial situation to remain largely the same until closing day.
This goes for cash purchases, too. Your credit-worthiness based on your overall financial picture, so if you drop a ton of money before closing, it can be detrimental to the home buying process. As hard as it may be, avoid spending money on things outside of your necessities until you’ve closed on your new home.
If you can avoid these big mistakes when buying a home, the mortgage process should be smooth sailing!
