Buying a home is one of the biggest financial decisions you’ll ever make. If you find yourself shopping for a mortgage – and most people do at some point in their life – it’s critical to take the right steps at the right time.
Unfortunately, many people find themselves in a compromising financial position because they make one or more mistake when applying for a mortgage and buying a home.
Here are five mistakes to avoid at all costs:
1. Borrowing What You Qualify For
It’s possible that you’ll qualify for more than you want to spend, which may tempt you to bite off more than you can chew.
Don’t make your decision based on what the bank qualifies you for. Make a decision after reviewing your finances and understanding what you can comfortably afford to spend each month.
2. Choosing the Lender You’re Most Comfortable With
It makes sense to consult with lenders you already have a relationship with, but don’t sell yourself short. They may end up being the best option, but you’ll never know until you shop around.
Request information from five to seven (or more) local banks, national banks, and credit unions. This will provide a clear overview of what each one has to offer a buyer in your position.
3. Ignoring the Interest Rate
When you’re dealing with such a large purchase, your interest rate will greatly impact how much you pay each month as well as over the course of the loan.
For example, the difference between a 5 percent interest rate and 4 percent interest rate is thousands of dollars over 15 or 30 years.
Rather than ignore the interest rate, shop around to find the lowest one.
4. Forgetting About Fees
Any time you borrow money you have to concern yourself with fees, especially those that are hidden.
There are many types of lender fees, with these varying from one financial institution to the next.
Ask about fees upfront, and don’t be afraid to negotiate should there be room to do so.
5. Small Down Payment
Not everyone has a large down payment, but you want to put as much toward the purchase of your home as possible.
Generally speaking, lenders require 20 percent down to obtain the lowest interest rate. This also allows you to avoid paying private mortgage insurance, which can easily add $100 or more to your monthly payment.
If you don’t have enough of a down payment saved, consider waiting until you do. Even if it takes you another year or more, it’s well worth it in the long run.
Even though it’s easy to make one of these mortgage mistakes, it’s just as simple to avoid them.
As long as you know what to expect and then prepare accordingly, you’ll end up with a mortgage that you’re satisfied with.
Do you have any experience securing a mortgage? Did you make any mistakes that you still regret? What advice would you give others about avoiding them?