Before jumping in the car to pick out the perfect home to buy, take a few minutes to read and go over these mortgage mistakes that are made far too often and usually end up costing homeowners BIG TIME! At this time of year, and when planning the most important purchase of your life, the last thing you want to do is end up with a fat lump of coal in your stocking that you’ll be paying on for years!
1. All Mortgages Are NOT The Same!
If the last 6 years have taught us anything it’s that you don’t want to be stuck with the wrong mortgage as these can cost you dearly. Find out what all your mortgage options are. Then make a full side by side comparison of each to find out which is right for you. Don’t forget to factor in worst-case scenarios and always plan to have some emergency savings to deal with such contingencies.
Tip: Use our Mortgage Calculator to help you make the most accurate estimates before you begin the process.
2. Limit The Amount of Debt You Have
Potential lenders will focus just as much on the amount of available credit you have (your debt-to-income ratio) as they do on your timeliness of paying on your debt. Regardless of how ‘on-time’ you are with your credit card payments, having lots of credit card, auto and other debt will definitely be a reason for quick denial for a mortgage loan.
Tip: Put off any large purchases until after you are in your new home.
3. Understand The Difference Between Pre-Qualification and Pre-Approval
Many people make the mistake of thinking pre-approval and pre-qualification are the same thing when they definitely are NOT. It’s VITAL that you understand the difference before wasting too much time hitting the pavement looking for the perfect home.
Pre-Qualified means that your potential lender is giving you an estimate of what they might be willing to lend based on the info you’ve given them thus far….nothing more. Alternately, Pre-Approved means that your lender has already verified all of the information you’ve provided and that they are actually offering to lend you the amount specified, under certain conditions they set down and at current interest rates.
Tip: Don’t waste any of your time or that of your Realtor by looking for any homes until you have been at the least pre-qualified and, preferably, pre-approved. This can save you a lot of grief and your Realtor a lot of frustration and, more importantly it’s just a GOOD IDEA!
4. Know Your Credit Score Before You Walk Out The Door!
Don’t let your credit rating be a surprise to be sprung on you by your loan officer. That almost never goes well. Instead you need to know your credit score and understand EVERYTHING included in your credit report before you ever start looking for a home, let alone applying for a mortgage.
Tip: Check your report for any mistakes so you can address/dispute them immediately. That’s not to say your credit has to be perfect, it does not. But if you don’t have good credit it’s a great idea to work on bettering that credit BEFORE you apply for a mortgage.
5. Do Not EVER Lie On Your Loan Application
This can’t be overstated. Lying on a load application is a federal offense and WILL cost you dearly. It’s bad enough when a lender bends the facts to get one of their clients approved; bad because the client is always the one who ends up paying for it. Worse, if YOU bend the truth or outright lie on your application, and your lender were to find out about it (and they usually will), they can actually call your loan due and payable…right then and there. Trust me, that’s NOT what you want to happen.
Tip: Tell the truth….PERIOD!
6. Make Your Purchase Contingent on a Home Inspection…ALWAYS!
A proper home inspection is vital to the home buying process. A reputable home inspector will thoroughly check out your potential purchase from top to bottom, front to back. If you think you don’t need or want to know if the roof is leaking, or the electrical is faulty, or the foundation is cracked, then you are sorely mistaken and setting yourself up for some potentially VERY costly expenses soon after purchase. And after you’re in your new home is too late. And needed repairs will always mean more money on your mortgage payments.
Tip: ALWAYS make your home purchase contingent on a good home inspection. Anything short is a big, big mistake.
7. Maintain Job Stability
Avoid applying for a mortgage until you have maintained the same job for at least a year or preferably two. Lenders like job stability.
Tip: DON’T change jobs during the mortgage process. Wait until after the home deal is finalized to make any job change.