Five Things to Avoid When Looking for a Mortgage
You Should Avoid These Five Things When Looking for a Mortgage. They Are the Bad Decisions and Poor Strategies That Will Make Getting an Affordable Home Loan Difficult.
Things to Avoid When Looking for a Mortgage
When you’re looking for a house and it comes time to choose a mortgage lender, you might find yourself feeling terrified and confused by all the options and conflicting pieces of advice about what you want. There are a number of basic pitfalls and factors you can avoid. Many of them are steps you should avoid neglecting, and starting off with this list in mind you can help you navigate the process calmly, find a loan that works for you, and get yourself in the right house so you can begin turning it into a home.
1. Don’t Fail to Get Some Basic Starting Information
You need to know what a mortgage is and how they work. A mortgage is a loan for you to buy a home where that home is used as collateral. They’re usually fixed-rate, meaning you set your interest rate when you sign the contract, and that determines your monthly payments for the life of the loan. The most common periods are 15- and 30-year mortgages, with the latter having higher rates because the bank is accepting more risk that it might not get all its money back. There are a number of other common signing and processing fees that impact the initiation of a mortgage, which increase the cost of getting your home loan. If you miss too many payments, the bank will foreclose on your home and take it as compensation for those missed payments.
2. Don’t Neglect Your Credit
Your credit score has a direct impact on your interest rate, and poor credit can make a mortgage several points more expensive. When you read about record lows below 4%, remember that those are averages based on the best rates possible. You can’t access those rates if you don’t have a great credit score, which requires an absence of delinquent payments as well as seasoned assets to prove good payment history.
Knowing your credit score before you being mortgage or house shopping is important because it means you won’t be surprised by bank offers. And if you check early enough in the process, you can give yourself several months to work on your credit, try to get missed-payment dings removed, and show consistency. This also helps you ensure you don’t take on any new debt or try to get a new credit card in the months before you begin loan shopping.
3. Don’t Ignore the Value of Getting First Pre-approved
You need to know how much you can afford for a monthly mortgage payment based on your credit score. This will help you identify homes in your price range and ensure that the escrow process goes smoothly once you find a home you do want. So you should take the time to get pre-approved for a mortgage before you do any home shopping. This is also a good time to set boundaries for yourself. You might qualify for more money than you can afford because you have great credit but are expecting some future expenses. Be honest with yourself and ensure that your final pre-approval is not for more than you can afford. This helps you set limits so you don’t over-extend yourself and expose your future home to foreclosure buy taking a bigger loan for more house than you can actually afford.
4. Don’t Leap at Your First Offer without Shopping Around
During the pre-approval process, you should shop around. Many banks may offer pre-qualifying. This is a good sign that they might approve you for a mortgage. Take the time to approach a variety of banks and lenders in your area so you can see what is standard, get a sense of what practices and rates you have avoidable, and find the best rate. If you leap at your first offer, perhaps because you think you don’t get another one if you walk away, you’re opening yourself up to paying more than you need to.
5. Watch out for Predatory Lenders
Especially if you have bad credit or have been in financial troubles, you might find yourself struggling to find an honest lender that will approve you. So you need to know what kinds of practices are predatory and immoral, if not illegal in order to protect yourself.
The biggest tip-off is if they require you to pay for or agree to take and pay for other services now or in the future. All you want is a mortgage now, with no obligation for anything else. This includes requirements to refinance, which you should also avoid. You may have to read through the fine print of the contract to identify these requirements. Although it’s illegal to “sneak” something into a contract, you would have to fight them in court and prove that this happened, so it’s better to read contracts thoroughly. Lastly, watch out for unreasonably high lender fees. This goes back to shopping around. When you’ve spoken to a range of banks, even those that might look like they won’t offer you a mortgage, you can get information about common fee ranges, making it easier to identify unreasonable fees as a sign of a predatory lender.
These are five of the most important pitfalls to avoid when looking for a mortgage. If you follow these tips and are diligent and patient with your research and shopping, you can find a decent mortgage that you can afford and which will get you into the home that is right for your needs and budget.