Mortgage Mistakes to Avoid
Choosing a home mortgage lender is one of the most important financial decisions a person can make. However, research done by The Consumer Financial Protection Bureau suggests that more than half of us don’t shop around to compare mortgages at all; instead, we settle for the terms presented by the first lender we visit.
Ask anyone who has struggled with their mortgage, and they’ll tell you they wish they’d put more time and energy into researching and understanding the fine print of their mortgage before they agreed to its rates and terms.
Unfortunately, dense financial paperwork isn’t all that easy to understand, and it can be difficult to know whether the person selling you your mortgage is honest or opportunistic.
We’ll cover all of that and more in this article. Today we are sharing 5 common mortgage mistakes and of course, we’ll tell you how to avoid making them.
1) Ignoring Your Credit Score
Before you even begin the search for a home, order a detailed credit check. If your credit is less than stellar, find out why, and take every possible step to improve it. Not only will this process help you develop more financial self-control and awareness before you take on the responsibility of a mortgage payment, but spending even a year or two polishing up your credit score will also make a positive impact.
Most importantly, don’t fall for lenders who “don’t care about your bad credit.” This phrase indicates that the terms of the loan are predatory; in other words, they’re designed to hurt and take advantage of the desperate and poverty-stricken in a community.
2) Failing to Honestly Evaluate Your Finances
If the lender you choose doesn’t ask a lot of detailed questions about your finances and confirm that a monthly mortgage payment for the house you want doesn’t exceed 28% of your gross monthly income, you should get out of that office and find another lender. No one should try and “help” you by shoehorning you into a financial black hole. A good lender will be honest about your situation and will want to protect your financial health.
3) Not Doing the Math
When you are considering a loan for a large sum of money over a long period of time, even a difference of 0.5% becomes significant. Take your time, shop around, and make sure the rate you are offered is the very best rate you can find.
4) Missing Out on Your Option to Earn Points
A discount point is a way for borrowers to purchase points to reduce their interest payments on a loan. A good lender will always discuss your point options with you. The pros and cons of discount points vary by situation, which is yet another reason to search carefully for a lender you can trust.
5) Not Saving Enough for Your Down Payment
After the housing crash, lenders have been far less likely to lend money to buyers who have zero down payment saved up. It is possible to get a mortgage loan without a down payment, but it’s much smarter to save first. 5% to 20% is standard for a home loan. Offer up less than 5%, and you’ll probably have to carry mortgage insurance, which will cost anywhere from $30 to $75 each month. This means you will need to approach the lender with enough cash to afford the initial down payment in order to secure an excellent rate