7 Common Mistakes to Avoid When Applying for Mortgages
Despite the economy being soft, home inventory is actually flying off the market. As a matter of fact, we may end up in a place where we have fewer homes for sale in the United States than at any other time in modern history.
Several factors have created that reality but whatever those factors may be, if you’re a home buyer, all reduced inventory means for you is that it’s going to be harder to find a dream home.
What can somewhat offset marketplace issues when buying is applying for mortgages intelligently but even that’s a tricky process.
While our team can’t help the inventory crisis, we can help you better navigate the mortgage process by sharing with you 7 things to avoid when seeking financial backing. Keep reading to learn more!
- Not Checking Your Credit Before Applying
The rate you’re going to get on your mortgage will be contingent on your credit score. If your credit score is bad, your interest on your mortgage will skyrocket. The converse is true if you have great credit.
So you’re not surprised by the interest rate you get upon submitting a mortgage application, get your credit score checked before applying. Take that score and pop it into mortgage calculators online to see, roughly, what sort of mortgage you’re likely to qualify for.
- Forgetting to Shop Around
The rates offered on Farmers Bank mortgage loans may be different from the rates offered at a competing bank. What that means for you is that you should do your diligence by shopping around several mortgage givers before choosing to do business with one.
By shopping around, you increase your odds of finding the best rates and can save hundreds of dollars per month on your mortgage.
- Applying for Mortgages Too Often
We’ve seen people hop on mortgage broker apps and fill out applications monthly to see what they qualify for based on their variable financial situation. That’s a bad idea mostly because every time you fill out a mortgage application, your credit is going to get checked.
With credit pulls being attributed to your account often, you’ll see your credit score drop which will make it so your mortgage offers get progressively worse.
- Failing to Understand Different Mortgage Types
There are several different types of mortgages borrowers can buy into. Each of them offers terms that may suit some while alienating others.
For example, a fixed-rate mortgage keeps your interest rate consistent over the life of your loan. A variable rate mortgage makes it so your loan’s rate can change often, making your payments unpredictable.
FHA loans are backed by the government and carry low interest/down payment requirements. Unfortunately, they have strict regulations tied to them which dictate how you use your property.
In addition to those loan types, there are VA loans, USDA loans, and others so get informed before applying to any particular loan type.
- Applying for More Home Than You Can Afford
Just because your bank says you can afford a house doesn’t mean that you can. You more than any institution know what your spending habits look like. You know how stable your income is.
Understand how much you’ll pay for a mortgage per month including what you’ll pay in taxes and fees. Look at that number and ask yourself, will I be able to comfortably make these payments? Will I survive if I lost a job for six months?
Keeping within your means when mortgage shopping will be key to ensuring that you can retain your property for the long haul.
- Forgoing Pre-Approval
Nobody likes wasting time. If you don’t have a pre-approval letter, time is exactly what you’ll end up wasting because you may bump into a house you love only to find that you can’t find a bank to back a mortgage for it.
Rather than finding a dream home and then trying to source funds, get a pre-approval for a certain dollar amount and confidently shop within that budget.
Pre-approvals not only ensure your ability to buy houses you’re looking at but instill confidence in sellers.
- Minimizing Your Down Payment
Just because some mortgage types allow for a 3.5 percent down payment doesn’t mean you should plan on putting just 3.5 percent down. This is one of the most common mistakes we see when people are applying for mortgages that come back to bite them.
Low down payment amounts mean high monthly mortgage fees. In addition to that high cost of principal and interest, you’ll also have to pay what’s called private mortgage insurance (PMI) each month.
PMI is a policy that ensures lenders that if you choose to run out on your home or trash the place since you have such little equity in it, they’ll be insulated against losses. You’ll have to pay PMI until you have 20 percent equity in your home and getting it removed from your loan can be a hassle to manage.
Avoiding Mistakes When Applying for Mortgages Will Make You a Happier Buyer
There’s nothing worse than dealing with a bad market while also dealing with snags that arise during the lending process. By taking to heart our mistakes to avoid when applying for mortgages, you can minimize the issues you run into, become a more competitive buyer, and a shopper that’s happier.
Those are benefits worth claiming so start applying for mortgages intelligently and feel free to check out more content on our blog for additional guidance.