Whenever you are making any large financial decisions, due diligence is a must. When it comes to obtaining a mortgage, overlooking these mistakes can cost several thousand. Here are seven mistakes that should not be overlooked when it comes to a mortgage.
Number one is to avoid not shopping around.
Just like with any other consumer product or service, you always want to shop around for the best deal. By doing this, homeowners can save by obtaining lower mortgage rates. According to a study done by Freddie Mac, consumers who obtain five rate offers saved around 16.6 basis points (bps) (or 0.166 percent) on their rate on average.
One myth that can be laid to rest is by shopping around for a mortgage you will lower your credit score. This is not the case. Usually, there are two weeks where you can have additional hard inquiries without penalty. Take your time and shop around do not just take the first offer without making sure it is the best for you.
Number two avoid paying unnecessary fees.
Do not just focus on your mortgage payment, there are additional fees that need to be considered when obtaining a mortgage. Even with no origination fees or lender commissions, there is still some additional cost that cannot be waived. The fees that can be waived are application fees, loan origination fees, loan officer commission and credit report fees.
Number three consider a 15 or 20-year mortgage.
You do save a little with a 30-year mortgage but that is only short-term. Over the life span of the mortgage, you will make payments for a longer period of time adding more interest than you pay to the lender.
With a 15-year mortgage, the monthly payments are higher but you will pay off the principal faster and with less interest paid to the lender. A 15-year mortgage interest rate is lower so you will be paying more towards the principal.
To make sure you make the right decision for you, compare the principal and interest on a 30-year fixed vs a 15-year fixed. If you are obtaining a $250,000 mortgage with a 10% down payment, a 30-year fixed will have a monthly payment of $1,024 with a 3.61% interest rate that totals to $143,719 in interest costs and a 15-year fixed with a rate of 3.13% will have a monthly payment of $1,568 and total interest cost of $57,226.
Number four consider all the cost when it comes to owning a home.
There are tons of hidden and sudden expenses when it comes to owning a home. Your final cost is not just the monthly mortgage payment so do not count on the figure a mortgage calculators give you.
A rule of thumb is to put away at least one percent of your home’s value each year for home maintenance and repair. So for a $360,000 house, you would set aside $3,600 a year or $300 a month.
Number five make sure you have a clear understanding of points and lender credits.
Points on a mortgage are referred to as discount points. When obtaining a mortgage you can pay off a one-time fee or points on top of your normal closing cost to get lower interest rates. Credits are referred to as lender credits. You would pay less in closing costs but have a higher interest rate.
Weigh each option to see which would be the best for you. Ask yourself how long will you hold on to the property? If you are going to keep the property for a long period of time you would benefit from paying discount points. However, if you are only planning to sell or refinance in a couple of years, lender credits are the way to go.
Number six check your credit score prior to obtaining a mortgage.
Your credit score can have a huge impact on approval for a mortgage. Each credit bureau allows a free credit report every year. It is always a good idea to review your credit report annually.
Number seven never leave any information off of your mortgage application.
The mortgage application is the first key step in getting preapproved. Misinformation or omitted information can lead to a non-approval. A common mistake many make is not including child support or alimony payments.
Lenders want to see everything you owe to make sure you can afford your mortgage payments. Even if you incur debt but make little or no payments, it is still owed.
Avoiding these mistakes is just one of the many steps you should take when obtaining a mortgage. When purchasing a home, your Realtor can help you make the right decision on a mortgage lender.
