Picking out the perfect home can be a challenging task. But that’s only the first step.
You still need to be an attractive loan candidate, navigate the mortgage process and plan well for the future.
Since all that can get a little tricky, many home buyers made mortgage mistakes that cost them dearly.
In order to avoid some of the biggest missteps, you should first know what they are.
1. Picking Any Old Mortgage
You don’t want to be saddled for even a short period of time with the wrong mortgage.
Investigate all of your options, and then you need to lay your choices side-by-side and do the math—making sure you have an emergency savings for worst-case scenarios.
Loan shop with several different lenders and use the realtor.com® mortgage calculator to fine-tune your estimates.
2. Confusing Pre-Approval or Pre-Qualification With Commitment
When you’re pre-qualified, the lender is simply giving you an estimate about how much you can borrow based on information you’ve provided.
When you’re pre-approved, the lender has verified everything you’ve provided and is offering to lend you up to a given amount at current interest rates—under certain conditions.
It’s much better to be pre-approved when shopping for a home, but it’s still not a guarantee: the lender’s final clearance and a loan commitment are subject to an appraisal satisfactory to the lender, a good title, a last-minute credit check and other verifications.
3. Having Too Much Debt
Even if you pay your bills on time, lenders tend to focus just as much on how much credit you have available to you—that is, your debt-to-income ratio—as they do on timeliness.
Being up to your ears in debt is a sure way to be turned down for a mortgage. Postpone any big-ticket purchases until after you buy your house.
4. Forgetting About Your Credit
Before you apply for a loan, you should know your credit score and credit report inside and out.
Thoroughly check your credit report for any possible mistakes. You can order a free credit report from each of the big three credit report agencies—Equifax, TransUnion and Experian—once a year.
If you see a mistake, dispute it. If your credit is bad, that’s okay: just work on repairing it before you apply for a mortgage.
5. Lying on Your Loan Application
Exaggerating your income on a mortgage application or putting down other untruths can be a federal offense.
If a lender finds out, they can make your loan due and payable. And while bad loan officers may stretch the truth to get a client approved, it’s the borrowers who end up paying the price.
6. Hiding From Payments
The worst thing you can do is ignore phone calls and letters from your lender when you are behind on your payments.
Lenders have many options at their disposal to help keep borrowers from losing their homes to foreclosure, but they can’t do anything for you unless they can talk to you about your difficulties.
7. Skipping a Home Inspection
Failing to make your purchase contingent on a satisfactory home inspection could be a costly mistake.
Good home inspectors examine houses from stem to stern. They’ll be able to tell you whether the roof or basement leaks, whether the mechanical systems are in good shape and how long the appliances should last.
Don’t get caught off guard by needed repairs, or it will mean more money for your mortgage payments.
If you’re unsure of where to find a good home inspector, ask a REALTOR® for a referral.
8. Making Big Life Changes
Lenders like stability.
It’s a good idea to have kept your job for at least a year or two before applying for a mortgage, and it’s even more important to keep your job throughout the mortgage process.
If you’re looking to switch jobs, wait until after you’ve closed the deal.