Buying your own house to build your family is one of the many crucial steps to take to ensure stability. However, it would most likely be the costliest purchase you will make in your lifetime.
Most of the time, a buyer may not have that much money on hand, which means he/she will need to take out a mortgage to purchase it. With that said, there are a lot of possible pitfalls that you could fall into if you aren’t too careful.
As such, this article will guide you on some of the things you need to consider and mistakes to watch out for when taking a mortgage. These will help you avoid any complications on the way.
Checking your Credit Before Starting
A common mistake many mortgage takers make is being negligent in checking their credit before starting the process. This practice can catch you in surprise when you receive your credit report, and this is something that you do not want to happen.
Not checking your credit will eventually make you lose money along the way, or worse, the house you intend to buy. To avoid this, check your credit before you start shopping for your dream home. If necessary, clear out some of the errors on your report, which may take a while to fix.
You have the right to a once-a-year free credit report from Experian, Equifax, and TransUnion, and they can fix the errors if there are any. The three bureaus will correct the error within 30 to 45 days.
Simultaneous New Credit Application
Applying for a new credit card while taking a mortgage will make your credit score drop because of the application check, which will last about 12 months. This may negatively affect the credit you already have, which also applies to closing old accounts.
The best thing to do is not open or close any credit line and watch what you’re doing. Stray away from other credit applications and keep paying on time, and you’ll be fine.
Opting on a Mortgage Lender without Checking Other Possibilities
Building trust between you and your mortgage lender will give you an advantage in the pre-approval period, which means less time wasted on the application when you have the contract signing.
Although the interest rates and terms are similar between lenders, the difference will be evident in the naming of final fees depending on the lender. Thus, it is wise for you to ask about title insurance fees, document preparation fees, and attorney fees.
To ensure that you’re dealing with the right lender, connect with relatives and close friends, and ask about their experience with their mortgage lenders.
This way, they will be able to recommend you to a few promising ones you can converse with before you make your choice.
Pre-approval would be extremely helpful in giving you a clear idea of the specifics you will work with. The pre-approval will include the interest rate, monthly payments, insurance cost, etc. Also, pre-approval makes the process faster, given that you have gained the lender’s trust.
You can quickly be pre-approved by asking for it and preparing the necessary paperwork, which may include the following:
- Tax returns
- Bank statements
- Pay stubs
- Necessary loan documents
Accepting an Excessive Loan
You have to make sure that you’re able to cover all the expenses needed for your new home, so taking on a loan you can barely afford would not be a wise choice. Eventually, if you keep missing payments, you’ll end up losing it.
To avoid this mistake, you should make sure you consider the property taxes, maintenance cost, and homeowner’s insurance fees that will run around 1% of the house value per year.
A great choice would be to ask for the sellers’ utility bill copies for 12 months. Upon pre-approval, lop off 20% off the lender’s maximum numbers to avoid being stretched too far.
Signing Documents You Did not Read Thoroughly
Taking a mortgage for a house is not as easy as many people think it is. Many buyers either do not ask enough questions or do not read the terms and conditions.
Knowing what’s on the contract and documents before signing will save you from possible fraud and excess payments. Regardless of your relationship with the lender, there’s nothing to lose with having sufficient knowledge.
The information you need to know are as follows:
- Type of loan
- The payment from start to end
- The interest rate
- Closing Fee
Most if not all creditors will ask you to pay for the insurance and taxes as soon as possible, so you should be aware of this as well. Note that the tax payments will affect the final amount to be paid during the closing period.
Timing the Market
Paying for your dream house at a lower rate is tempting. Thus, many people try to delay the process while waiting for prices to drop down or try to reduce the price as mush as possible.
However, this practice is not as good as it sounds because the difference may be too little and cause the buyer the opportunity to acquire a great real estate unit.
Better yet, if you’re ready and found the perfect house for you and your family, then go ahead and grab it and do not bother with timing the market.
Now that you have gone through the mistakes you might make along the way; you are all set to make your move in taking the mortgage for your dream home while taking the necessary precautions.
Hopefully, these will make you feel safer and assure you of a smoother mortgage process. Once you’re sufficiently prepared, you may start finding your mortgage lender and ideal house as soon as you can.