Very few people have the means to buy a home with cash only, and that means in order to buy a home, most people are going to need a loan. Because loans are so important to buying homes, it’s important that buyers make sure they don’t make any mistakes when applying for and using them. However, it can be easy to make mistakes, especially for first-time home buyers who haven’t dealt with mortgages before. Here are some common mistakes buyers make regarding mortgages and how to avoid them.
1. Going With the First Lender
There are many, many different lenders out there, and each of them offers different rates and benefits for choosing to work with them. Because of this, it’s important for buyers to shop around to find a mortgage lender to ensure that they’re getting the best deal possible. However, many buyers choose to use the first lender they find without looking at any alternatives. While the first lender a buyer finds may be a good one, it’s impossible to know if they’re getting a good or bad deal without checking. Before committing to a specific lender, be sure to look around and get quotes from some alternatives to ensure the best deal.
2. Assuming 20% Down Is the Only Option
To qualify for a loan, many lenders require that the buyer put 20% of the home’s total value down at the very beginning. However, 20% isn’t necessary for every loan. There are some loans, such as an FHA loan, that allow buyers to purchase a home with as little as 3% down, which is far more viable for some buyers and can be the difference between owning their own home and not. It should also be noted that just because buyers can put just 3% down, doesn’t mean it’s the best option. Putting less down means more expensive mortgage payments later on and can also result in having to pay PMI (private mortgage insurance) until a certain amount of money has been paid.
3. Not Getting Pre-Approved
Going house hunting is exciting, and many buyers want to jump in quickly and find the home of their dreams as soon as they can. However, it’s important to wait just a bit to get pre-approved for a mortgage. Being pre-approved for a loan gives buyers written proof of how much money they are allowed to borrow and who they’ll be borrowing from. And on top of that, many sellers like seeing buyers who are pre-approved because it means there will be no extra waiting for the buyer to find a loan, and there will be a low risk of a deal falling through due to the loan.
4. Having a Big Change in Credit Score
When applying for a loan, a buyer’s credit score is extremely important and will be a big factor when determining if the lender will loan them money or not. Even if the buyer is already pre-approved for their loan, if the lender sees a big change in the buyer’s credit score, they could choose to revoke that approval, leaving the buyer back at square one. Here are some things affect credit scores:
- Inquiries made due to applying for new credit cards
- Late payments
- Undertaking large new debts
- How much credit is being used
Choosing a mortgage is one of the most important things someone will do in their lifetime. Avoiding these mistakes can help buyers save money and make buying a home just a bit smoother.