When you apply for a new mortgage the first steps are checking and correcting your credit report. Paying down outstanding balances on your credit cards. Not applying for new or frivolous lines of credit. Making sure you have a steady job with long term prospects.
All of these are items that the average applicant is aware of and prepares for. One of the biggest stumbling blocks that trips people up, especially home loans for purchases, is not saving enough. It is not that people are unaware that they will need a large down payment, it is just that they tend to underestimate just how expensive it can be to buy a house.
And think of this from a lenders perspective. If you don’t have enough money to save before you buy a house, how are you going to deal with all the expenses that come with home ownership? Have you considered the cost of a furnace, an air conditioner, a new roof? What about taxes, paint, a lawn mower? It isn’t cheap. Save enough money for your down payment. A larger down payment means a better rate. When it comes to a mortgage we all want the best rate. It can save hundreds of dollars a month, thousands per year and a truly staggering amount over the lifetime of a 30 year mortgage.
It can be a challenge to save that kind of money, especially with the emotional need people feel to own their own home. But, you are going to need more. Make sure you talk to your lender about closing costs. One of the big differences between an experienced and knowledgeable loan officer and one with less experience is their understanding of closing costs. Your lender should be able to help you by letting you know exactly how much money above and beyond your down payment you are going to need for closing costs. The closing table is no place to find out you are a few hundred or even a few thousand dollars short of what you need for closing.
This can even be a problem when you are refinancing your mortgage. Make sure your lender takes the time to explain the expenses and how much money you will need to bring to close the loan. In the weeks leading up to signing the papers, there are a number of expenses that can deplete your savings account. The home will need to be appraised, this can cost anywhere from a few hundred to a thousand dollars depending on where you live and the complexity of the appraisal.
There is a good possibility that you will need a survey. Once again the price of this varies but a good guess would be around five hundred dollars. Home inspection, it is crucial to have this done to avoid more expensive surprise after you move in. Sometimes these expenses can be rolled into the loan, but try to have enough savings to cover it and you won’t end up with an unpleasant surprise. Before applying for a mortgage, save, save, save. The lender will be pleased, and you will get the best rate possible!