In 2019, existing home sales numbered 5.34 million while another 682,000 new construction homes sold. Are you ready to join those statistics with a home purchase?
Securing your mortgage is your first step, but that can be overwhelming. With so many options and variables, it can be difficult to know what to do. Being aware of common mortgage mistakes can help you get through the process in the best financial position possible.
Keep reading to learn about common mortgage mistakes.
1. Overextending Yourself
When you apply for a mortgage, you’ll get approved for up to a certain amount, but you shouldn’t necessarily use that full amount. Borrowing too much money may make it difficult to pay your mortgage.
Experts recommend that your monthly mortgage payment should be no more than 28% of your income. If your monthly income is $5,500, your mortgage should be no more than $1,540.
Working with mortgage consultants can help you decide on a suitable mortgage amount. Consider how much you can reasonably afford within your budget to avoid taking on too large of a mortgage. For some people, 28% of their monthly income is still a stretch due to other bills.
2. Not Getting Pre-Approved
Pre-approval helps you figure out if you’ll be able to get a mortgage. Without pre-approval, you might find out after making an offer that you don’t qualify for a mortgage. It also helps you figure out what you can afford to help you narrow down your home search.
Another benefit of getting pre-approved is showing the seller that you’re a serious buyer. They’ll be more willing to accept your offer if they know you’re pre-approved.
3. Offering a Small Down Payment
The often recommended down payment is 20% of the purchase price, but many buyers put down less. Among first-time home buyers, the median down payment was 6% in 2019.
A full 20% down payment is out of reach for many home buyers. However, a lower down payment could cost you more in higher interest rates and the addition of PMI. Your monthly mortgage payments will be higher when you have more of the purchase price to pay.
If you only have a small down payment, consider holding off until you can save a larger down payment.
4. Failing to Consider Credit
Your credit score affects whether or not you get approved and your interest rate and terms. Check your credit score before applying to see if there’s room for improvement. Waiting until your score improves can help you get better mortgage terms.
Once you’re pre-approved, don’t make major changes that could affect your credit. This includes buying a new vehicle, taking out a new credit card, or charging a lot of money to your credit card. Those changes could prevent you from getting the mortgage even if you were pre-approved.
5. Not Shopping Around for Mortgages
Shopping around for mortgages with multiple lenders helps you find the best rate. If you go with the first lender, you might pay more in fees and have a higher interest rate. Lenders can offer a wide range of rates and terms even though they use the same financial information to make a decision.
Avoid Common Mortgage Mistakes
Being aware of common mortgage mistakes before you apply can help you protect your financial interests. Taking a strategic approach to your mortgage can save you money and help you afford your payments.
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