3 Common Mortgage Mistakes and How to Avoid Them
Your first-time home mortgage may be the largest financial commitment you’ll ever make, so it’s important you’re aware of how they work. It’s an exciting time to finally be able to call a home your own so make sure you know all the details so that you make the right decision. A little research and due diligence will pay off in the long run and make home ownership more enjoyable in the future.
1. Neglecting to Repair Damages Credit before Applying for a Loan
One of the main mortgage mistakes first-time home buyers make is not repairing their credit before applying for the loan. Your credit rating will determine not only if you get the loan, but what interest rate you qualify for. A higher interest rate can mean you end up paying thousands more over the term of the loan. Six months before you anticipate buying your new home, request free credit reports from all three credit reporting agencies. Then review these with a fine tooth comb to identify any bad spots, such as a late payment, or even activity that is not yours. You can work with the reporting agency to remove or explain blemishes on your credit report to obtain the best score possible. This will help you to avoid unexpected surprises once your loan application is submitted.
2. Borrowing More Than You Can Afford
Another common pitfall for new home buyers is borrowing too much money for their mortgage. Just because you qualify for a certain amount, doesn’t mean you have to borrow all of it. If you borrow the maximum amount you qualify for, you may be placing yourself in a financial bind. Be very aware of how much your total house payment will be, and don’t forget to factor in the higher utility bills, home repair or improvement, and other items, like contents insurance, that you will need to spend money on.
The mortgage company will tell you how much your principle plus interest payments are, but this is only part of the house payment. Also included in a house payment are the taxes, homeowner’s insurance, and maybe homeowner association fees. It is always better to have a little money left over at the end of the month, rather than to be scrambling to make your house payment and other bills every month.
3. Jumping at the First Opportunity
Not shopping around for a good rate and term for your mortgage is another common first-time home buyer mistake. Don’t just accept the first loan you find, you could be paying a higher rate than necessary. If you shop around, you can feel confident that you were able to get the best rate possible. A mortgage broker may be a good place to start, especially for a first time home buyer. They have the knowledge of several different products, and can help you with comparison shopping.
It may take a little extra time and patience to do the research and work to get a home mortgage, but in the long run will pay off. Mortgage mistakes can have long-term repercussions on your finances, so a little legwork will go a long way to securing your financial future.
Olivia Jones is a health and financial blogger and also a contributing writer for Policy Expert.