10 common mistakes buyers often make when it comes to mortgages
Updated: Oct 17
Many buyers use mortgage loans to purchase homes. Today, let's talk about 10 common mistakes that buyers often make when obtaining a mortgage.
1. Focusing Too Much on Interest Rates
Many buyers tend to focus solely on the interest rate when getting a mortgage. While the interest rate is important because it directly affects your monthly payments, sometimes borrowers neglect to consider other factors, such as points, fees, and the overall cost of the loan. In some cases, a lower interest rate might come with higher upfront costs, making it more expensive in the long run. It's crucial to carefully review all aspects of the mortgage. 2. You Don't Need to Put Down Exactly 20%
While putting down 20% for a down payment can help you avoid mortgage insurance, it's not a strict requirement for obtaining a mortgage. Additionally, with most conventional loans, once you've paid down your principal to below 20% of the home's value, you can cancel mortgage insurance. Therefore, don't fixate on the 20% rule, and consider a lower down payment if it fits your financial situation. 3. Mortgages Don't Get Approved Instantly
Many buyers mistakenly believe that once they apply for a mortgage, it gets approved instantly. In reality, the mortgage approval process typically takes 3 to 45 days or longer, depending on the borrower's financial situation. It's advisable to allow some buffer time when setting your closing schedule to accommodate potential delays. 4. Pre-Approval Doesn't Guarantee 100% Approval
Receiving a pre-approval (or pre-qualification) letter from a lender does not guarantee a 100% mortgage approval. The actual mortgage approval process is more complex and can lead to rejections based on a borrower's financial situation. It's essential to remain cautious even after obtaining pre-approval. 5. Consider First-Time Home Buyer Programs
Various first-time home buyer programs may offer favorable terms based on your status, financial situation, and credit score. It's important to review these programs and see if you qualify for any that suit your needs. 6. Manage Your Credit Score
Managing your credit score is crucial in the months leading up to applying for a mortgage. A good credit score can help you secure a lower interest rate and access larger loan amounts. Conversely, a low credit score can result in loan denials or higher interest rates, potentially preventing you from purchasing a home. 7. Carefully Select the Right Mortgage Type
The type of mortgage you choose, such as FHA, VA, USDA, fixed-rate, or adjustable-rate, should match your specific circumstances. This decision can be challenging to make without expert advice. It's advisable to work with experienced lenders or mortgage brokers who can recommend the most suitable mortgage product for your situation. 8. Additional Costs Beyond Down Payment
Buyers often focus solely on the down payment and forget about additional costs. These costs include inspection and attorney fees, mortgage-related expenses, title-related costs, and prepayments for about three months' worth of taxes and homeowners' association fees. These can amount to 1-3% of the home's price. 9. Prepare for a Low Appraisal
In a competitive market, it's common for an offer to exceed the appraised value of the home. In such cases, buyers must be prepared to cover the difference in price, or the loan may not be approved. It's important to anticipate this scenario and have a plan in place. 10.Shop Around for Mortgages
Comparison shopping for mortgages is crucial. You should thoroughly review and compare the interest rates and additional costs from at least 2-3 lenders or brokers. This process can potentially save you thousands of dollars.
Today, we discussed ten common mistakes that buyers make when dealing with mortgages. We'll continue to provide helpful information in future articles.
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