Committing to taking a mortgage is a huge responsibility and requires thorough preliminary research about both advantages and disadvantages of getting one along with the buyer’s eligibility to receive it. One of the most common cases to request for a mortgage is a decision to get a house.
The amount of required documents, records, and work in general required for getting a mortgage can be scary at first, but it is nevertheless highly recommended to get everything checked, approved, and calculated in order not to face any mortgage problems in the future.
Despite multiple articles on the topic of real estate and numerous agencies out there ready to assist and advise, people still tend to make quite a lot of mortgage mistakes on each step of the way.
Let’s have a look at 8 common mortgage mistakes, which need to be remembered and never made.
Poor research when choosing a mortgage company
There are quite a lot of mortgage lenders out there to choose from. It might be quite a challenge at first to understand where to start. But it is rather essential to know that none of the existing mortgage products is the same. Different lenders offer different terms and conditions.
The first thing for a buyer to do is getting their hands-on research. Going online and starting surfing the internet is a good way to get information and start building an impression of the market. Every company nowadays has their own website with detailed information, reviews, and conditions for getting a mortgage.
Another way to receive information is by asking friends, friends of friends, colleagues, and family members. Someone out there has already dealt with mortgages, knows how it all works, and may as well introduce you to a trusted bank or lender. They might also share the most often mortgage issues, which might appear throughout the whole process, in order for you to know what to expect.
Sometimes your real estate agent can be of great help. The ones that are in the industry quite for some time definitely dealt with mortgage lenders in the past. They might give some good advice and help to avoid common mistakes.
Before making a final decision and choosing the mortgage company to work with, it is important to speak to each company’s representative to know what they are offering and how suitable the existing conditions are for you.
Asking questions is the key to choosing the right lender. Everything related to the mortgage costs, home loan length, types of mortgages, and rates should be discussed in advance. You should be sure that you are making the right decision by choosing the lender who you will be committed to for quite some time.
Lack of understanding mortgage types
The second most common mistake made by most buyers when taking a mortgage is a lack of understanding of its types. There exist several main types of mortgages, and they drastically vary from each other according to their terms, rates, and length. It is essential for the buyer to understand whether they are eligible for certain types and get themselves acquainted with all the advantages and disadvantages of each type before making a final decision.
Two common types of mortgages include a 15- and 30-year one. Both have fixed interest rates but, at the same time, absolutely different monthly payments. Due to a longer period, a 30-year mortgage will have a smaller down payment, but the fixed rates are going to be higher due to certain risks the lender might face. At the same time, a 15-year mortgage has a lot of advantages, one of which is the shorter period of time to pay off the loan, but not everyone can be qualified for getting one.
Apart from that, there exist a number of different mortgage products in both options. Those include FHA (Federal Housing Administration) loan, Veterans Administration Loans, Fannie Mae, and many others. It is advisable to get into each of these categories and understand the basics in order to choose the suitable one.
Once you choose the lender, they will be explaining everything about the existing types of the mortgage, but it is always good to know more in advance. In this case, you will be able to ask more questions to create a bigger picture and choose what is right for you.
Failure to calculate the fees of getting a mortgage
Another mistake of the person getting into the world of real estate and the potential mortgage is miscalculating or not paying attention to numbers in general. The down payment is, much to everyone’s regret, not the only fee to be paid within the whole period of buying the property.
Like no real estate agent will work for free, same works for the mortgage lenders, bank and real estate attorneys, and other people who will be involved in the process.
Among the common fees of getting the mortgage loan are:
- Credit report fee;
- Processing fee;
- Underwriting fee;
- Origination fee.
The potential buyer, getting ready to commit to having a mortgage loan, should be ready to pay off all the bills.
When choosing a mortgage company, the buyer should get all the information about the numbers written for them in order to compare what different lenders can offer and what the actual rates for each one are.
Lack of understanding of the actual cost of owning a house
Apart from the mortgage and real estate agent costs, there is more to come for the property buyers. As well as doing good research, a detailed calculation will help to avoid many mistakes in real estate investments.
The buyers should understand that once everything is set with the mortgage company, the monthly loan payments are not the only thing left to take care of. Such things like house renovation, minor repairs, home maintenance, and house bills will always be there.
Sometimes people who buy a new house forget how many things they will actually need inside. Those include furniture and most essential appliances for everyday use. Some houses come with most of them included, which might help save some money at first, but the buyer should understand what needs to be bought if the home is empty.
The buyer should take into account every possible thing which will require spending money, like groceries, petrol, entertainment, and unforeseen circumstances.
Failure to get a pre-approval
A very common mistake for the people planning to buy a house and commit to paying off a mortgage is not getting a pre-approval before starting the process of looking at the homes. There exist many reasons why pre-approval is important, along with many negative consequences in case of not having one.
First of all, pre-approval will be requested by your real estate agent before they start the tour around available houses in the area. For them, the existing pre-approval gives many advantages:
- It saves time for the buyer, for the real estate agent and what is even more important – for the seller;
- It is proof of the buyer’s ability to settle the bills;
- It gives an overall image about buyer’s opportunities when it comes to choosing the house;
- It means the mortgage company has done its analysis and got all the required information about the buyer’s eligibility and credibility;
- It gives access inside the seller’s property as not everyone is ready to show the house for the person who doesn’t have a pre-approval letter.
Secondly, a pre-approval is very important for potential buyers as there exists a huge competition on the real estate market, and sellers are most often reviewing several buyers for the same unit and their decision is mainly based on the existence of all the required documents, inclusive of a pre-approval letter.
You will save yourself, and other people involved time and effort by getting a pre-approval in advance.
Overdue payments and unclear credit history
Another common mistake of potential buyers is that they don’t settle the bills on time and ignore their credit history.
The first thing any mortgage company will do is review the detailed report in order to determine the buyer’s ability to pay the bills. This information is required for a pre-approval letter as well as getting the mortgage at the end.
Along with the credit history, all the existing due balances should be regularly monitored and settled on time as the failure to do so might result in the potential decline of the mortgage. Make sure to pay all the monthly bills, credit cards, anything related to the rents and current loans.
The preparation to qualify for a mortgage loan should start in advance. You should make sure that there will be no additional questions or uncertain facts once all the information about your payments is pulled out.
Too many debts
Along with overdue payments and credit history, the mortgage company will always check all the existing debts of the buyer. Too many obligations are always a negative factor and will never help to receive either a pre-approval letter or a mortgage loan.
Firstly, buyers should objectively evaluate their ability to carry on with all the existing and future payments. It is essential to make all the calculations and understand the chances.
Secondly, mortgage companies will hardly miss any important information in the record of the buyer, so the last one should be ready to answer and explain as well as provide proof of their ability to pay off. The income should always be higher than the number of debts, so the buyer should consider reducing the debts to the maximum before committing to a mortgage loan.
Failure to provide a record of job stability
The last mistake related to mortgage loans is the lack of stability when it comes to buyer’s workplaces. Apart from the bank records, credit history, and the number of debts, the mortgage lender will pay not less attention to the amount of jobs taken within the last few years. Stability is always valued, either it is about making all payments on time, closing the debts, or being committed to an employer more than just for a few months.
It is the same story when you change jobs. When applying for the new one, the employer will certainly ask why you are changing the place and will not be satisfied to see that it is actually the third time you are doing it within the last month. It is far more serious when it comes to real estate as the mortgage company will be questioning your career history in order to understand how serious you are and how capable it will be when it comes to settling the payments.
The world of real estate has never been easy. It is always about huge competition, both among the real estate agents and among the buyers. In order to get the desired house and be qualified for a mortgage loan, you should meet quite a long list of requirements. Hence, before committing, it is always important to evaluate and analyze your chances.
Understanding how the market works and knowing all the possible mistakes when it comes to getting a mortgage can help to avoid failures and frustration as well as save quite a lot of time and money. It is vital to always ask for advice, study the existing examples, do good research and find the right mortgage company which will suit you in terms of rates, conditions, and the way they deal with their clients.
Advance preparation will help you understand more about mortgage types and the way each one works; settle the due bills and make sure the credit history looks good and promising while a pre-approval letter will be the key to a better work relationship with your real estate agent and a higher possibility of getting a house of your dreams.
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