When applying for a mortgage, borrowers make a lot of blunders. But that doesn’t mean you should do nothing about it. Learn from the mistakes of other homebuyers so that you can avoid making them yourself. A huge amount of your money is at stake here, so it pays to be careful and prepared.
The following the most common blunders that you can prevent from happening when you apply for a mortgage.
1. Applying for a loan amount that you cannot really afford – Owning a home can be very expensive, but many homebuyers choose the biggest mortgage, hoping that their income would increase over time to make the payments less of a hassle. They fail to realize that aside from mortgage, they have a variety of expenses to worry about such as taxes, insurance, and utility costs. Overbuying can get you nowhere except to foreclosure or worse, stress coming from overstretching your budget to accommodate your housing costs.
How to prevent it: Limit your housing expenses (which include everything such as mortgage payments, taxes, and insurance) to less than 25 percent of your total monthly income.
2. Failure to shop around and compare rates and terms – This is a surefire way to waste your hard-earned money. Without careful research and planning, you might end up making higher mortgage payments than you should. For example, the loan you availed of might be for someone with bad credit score (while yours is of good standing). As a result, you will have to bear with a higher interest rate.
How to prevent it: Do your homework: research and compare the offerings from different mortgage providers.
3. Choosing the wrong type of mortgage – The best mortgage for you depends on your unique financial needs and situation. If you select a mortgage with a 30-year term when you are going to retire in 5 years, then apparently you won’t have sufficient funds for repaying your loan for the next 20 years or so.
How to prevent it: Research thoroughly and ask for expert opinions. Assess your situation so that you know which mortgage type will work best for you.
4. Failure to improve your credit score – If you have a bad credit score and still you applied for a loan (with your fingers crossed and wishing for the approval of your loan application), that is tantamount to wasting your time and effort. It’s because mortgage companies won’t approve it anyway.
How to prevent it: Get a copy of your credit report at least six months before you apply for a loan. That way, you have ample time to dispute mistakes on the data of your credit report and have all of them removed. This will also inform you about the late payments you still need to settle so that your credit score will get a boost.