There are a lot of things to think about when buying a home, the first and most significant of which is usually getting a home loan. After all, you can’t buy a new home if you don’t have the money to pay for it. Since most people don’t or can’t save hundreds of thousands of dollars to pay cash for a house, they must rely on a mortgage for the funding. However, shopping for a mortgage can be a confusing process. It’s not uncommon for homeowners – especially first-time buyers – to make mistakes that cost them money.
Mortgages are not created equal. There are many types of mortgages on the market, and the one you end up with depends on many factors. Here at Homestead Financial Mortgage, we like to make sure homebuyers are educated enough to get the best mortgage for their unique situation.
There are several common mistakes buyers make when shopping for a mortgage. Familiarize yourself with these so you don’t fall into these traps when shopping for a mortgage.
Mistake #1. Choosing a lender without shopping around. Just as you’d shop around for the best price on a new car, you should shop around for the best interest rate before settling on a mortgage lender. Interest rates fluctuate from one lender to another, and even a couple percentage points can make a big difference in the total amount you’ll pay over the life of the loan. Contact several banks and mortgage lenders to compare loan terms and interest rates. While you have them on the phone, ask about additional fees. Many lending institutions include extra fees that you might not have expected. These fees may come as an unpleasant surprise at closing, so ask about them up-front. Also ask about any incentives they’re offering. The mortgage business is very competitive, and a lender who wants your business may offer an incentive to get it.
Mistake #2. Not checking your credit report. It’s always a good idea to know where you stand when it comes to your credit score, but it’s especially critical if you’re getting ready to apply for a mortgage. Lenders want to see that you’re a good risk before they agree to loan you a large sum of money. One of the ways they assess that risk is by looking at your credit score. The higher your credit score, the more likely you are to make your monthly mortgage payments. A high credit score often qualifies you for a lower interest rate and more favorable terms on your loan.
Consumers may request one free copy of their credit report annually by contacting the major credit bureaus through AnnualCreditReport.com. Take this step and see where you stand. Then take the following measures to boost your credit score before you shop for a mortgage:
- Close any accounts that are open and have no balance. Lenders don’t like to see open lines of credit.
- Pay off as much debt as you can ahead of time. Once accounts are paid off, close the account. The amount of your loan will be determined, in part, by how much debt you’re carrying, as well as the amount of your monthly payments. Lowering this number ahead of time puts you ahead of the game.
- Dispute anything on your credit report that looks suspicious. It’s not uncommon to find errors on a credit report, and they often take some time to resolve. Start this process as soon as you notice something out of line.
Mistake #3. Opening a new credit account. If you’re getting ready to buy a home, this is not the time to open a new line of credit. A new credit application on your credit report is a red flag for any lender. Save the furniture shopping for after the sale has closed.
Mistake #4. Changing jobs. Don’t change jobs right before you purchase a home, no matter how lucrative the new position is. Lenders will want some assurance of consistent income and trying to establish yourself in a new job rocks the boat. Most banks and mortgage companies need proof of at least two years of stable, consistent income. If you’re unhappy where you work, stick it out until after you’ve purchased your home. Then make the switch.
Mistake #5. Taking out a loan that’s bigger than you need. Many lenders want to qualify you for the maximum amount possible. The explanation is that this allows you to purchase the biggest, best house possible. However, keep in mind that any money borrowed must be paid back. Qualifying for a large sum doesn’t mean you have to take that amount. Keep your budget in mind, and don’t borrow more than you can comfortably handle. You won’t enjoy your new place nearly as much if you’re always worried about how you’re going to make the monthly payments.
Mistake #6. Signing paperwork you don’t understand. Many homeowners are surprised at the amount of paperwork that’s involved in closing a mortgage. If you’re uncertain about anything you’re being asked to sign, take the time to read through it thoroughly. Ask questions if there’s something you don’t understand. Real estate professionals are often a great resource when it comes to understanding mortgage documents. Tap into their expertise so you have a full understanding of what you’re signing and why.
Work with a Professional Mortgage Company
Homestead Financial Mortgage is a trusted mortgage lender for homeowners in St. Louis, MO, Overland Park, KS, and Godfrey and Glen Carbon, IL. We’re also licensed in Colorado, Indiana, Ohio, Tennessee, and Florida. We’re always happy to answer questions, and we’ll help you get the best terms possible for your mortgage loan. We also offer other resources – such as trusted real estate partners – that can answer questions and help you find the home that best fits your needs. Give us a call today for more information or to get started with the mortgage application process.